Wednesday, August 24, 2005

Transfer of ownership in qarD (loan in classical jurisprudence)

When I made an assertion that in classical loans (qarD), ownership is transferred to the borrower, someone asked "what jurisprudence are you reading?"... So, here is a short summary:

The term qarD, derived from the past tense qaraDa, means "cut-off piece", since the lender (muqriD) cutts-off a piece of his property and gives it to the borrower (muqtariD). It is a contract of exchange: The Hanafis define it as an exchange of a certain amount of fungible property now for an equal amount of fungible property in the future. The other schools define it as an exchange of a certain amount of fungible property now in exchange for a liability (debt) established upon the borrower. (See Hashiyat Radd al-MuHtar by ibn `Abidin, and Al-SharH al-Kabir by al-Dardir).

Abu Hanifa and Muhammad Al-Shaybani ruled that ownership of lent property is transferred from lender to borrower upon receipt, whereas Abu Yusuf held the minority opinion that the lender retains ownership as long as the lent property is not consumed. (Hashiyat ibn `Abidin).
Most Shafi`is and Hanbalis agreed with the majority Hanafi view that ownership is transferred from lender to borrower upon receipt (Al-muhadhdhab by al-Shirazi and al-Mughni by ibn Qudamah).

The Malikis ruled that ownership of lent property is transferred to the borrower through the contract, i.e. before receipt. They used this ruling to conclude that returning the exact borrowed property may not be allowed if the property had changed -- since it was exchanged for a liability for equal amount. (al-Dardir)

So, as we can see, the vast majority of jurists ruled that ownership of lent money would transfer from lender to borrower.

Conditions that reinforce the lender's right to repayment (including rahn or mortgage of a property) are allowed. However, restrictive conventants, that determine how the borrower must use the lent money (e.g. to buy a particular property, as in the case of secured lending operations in the west) negate ownership of that money being transferred from lender to borrower... In sales and other contracts through which property is transferred, a condition that the established owner has restricted use of the property (including the ability to sell it) are deemed invalid.

I am not claiming that this is a final analysis, only that jumping to conclusions based on classical rulings on qarD, just because one borrowed money under American laws, seems premature. Serious juristic analysis of contemporary dealings, on which the Canonical Texts are silent, and on which classical jurists could not have ruled, is required. Otherwise, we end up creating arbitrage opportunities that cost Muslim customers without providing them with value.


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