In Islamic finance, a loan in the strict sense is qard hasan: money lent with no charge beyond repayment of the amount borrowed. What banks market as “Islamic loans” are usually not loans at all, but sales, leases or partnerships, such as murabaha, ijara or musharaka, through which the bank earns a profit or rent tied to an asset. Islamic finance prohibits interest and links financing to real economic activity, as the IMF describes it.
This guide is general information, not a religious ruling or financial advice.
What is qard hasan?
Qard hasan, often translated as a benevolent loan, is a loan repaid at face value with no interest or profit. Because the lender earns nothing, it is used mainly for charity, by mosques and community funds, by employers for staff advances, and by some Islamic banks for small social loans. Banks may charge a fee to cover the actual cost of administering it, but not more. Setting that fee correctly is an active topic among Shariah scholars, including at AAOIFI’s 2026 Shari’ah Boards Conference.
If not loans, what do Islamic banks offer?
| Contract | Type | Typical use |
|---|---|---|
| Murabaha | Sale at cost plus agreed profit | Cars, equipment, inventory, some home finance |
| Ijara | Lease, often ending in ownership | Homes, vehicles, equipment |
| Diminishing musharaka | Co-ownership with gradual buyout | Homes, commercial property |
| Mudaraba | Capital from one side, management from the other | Investment and business finance |
| Istisna | Sale of an asset to be built | Construction and projects |
| Tawarruq | Commodity sale used to raise cash | Personal finance, working capital |
The Saudi Central Bank rulebook defines murabaha as a sale in which the bank sells a specified asset to the customer at cost plus an agreed profit margin. Our guide to Islamic finance contracts explains each one, and our guide to halal financing shows how they apply to homes and cars.
Why does the difference matter?
Under a conventional loan, the lender earns interest simply because time passes. Under a murabaha or ijara, the bank must own the asset at some point and carries ownership risk, which is the basis on which its profit or rent is permitted. That also means the asset matters: these contracts work well for houses and cars, and less well for things that cannot be bought and resold.
Are there Islamic student loans?
Education is harder to finance on Islamic terms because tuition is a service, not an asset that can be bought and resold. Options that providers and communities use include:
- qard hasan from community funds, mosques or zakat-supported schemes;
- service-based contracts (ijara on services) offered by some Islamic banks;
- scholarships and employer sponsorship;
- income-share agreements, which some scholars accept and others question.
In countries where government student loans charge interest, students should ask a trusted scholar about their own situation, as opinions differ.
Checklist before taking Islamic financing
- Ask which contract is used.
- Confirm the provider owns or bears risk on the asset at some stage.
- Compare total cost, including fees, with conventional options.
- Check late payment terms and whether penalties go to charity.
- Ask which Shariah board approved the product.
Related reading: the no-fee Islamic credit cards from Maybank Islamic and CIMB Islamic.
FAQ
Mostly no. They provide financing through sales, leases and partnerships. True loans (qard hasan) are interest-free and usually limited in size.
Qard hasan is a loan repaid at face value with no profit. Murabaha is a sale of an asset at an agreed mark-up, paid in instalments.
It is free of interest, but not free of cost. The provider earns profit, rent or a share of returns.
