The Qard Hasan Litmus Test

When I became Muslim, the thing that made me realise just how incompatible the modern fiat monetary system is with Islam, was the concept of Qard Hasan. What started as a single uncomfortable realisation ended up being something far more useful. Once I understood Qard Hasan, and what it exposed about the money we all use, I also had the clearest possible test for assessing Bitcoin from an Islamic perspective.

Qard Hasan is the Islamic practice of lending interest-free to those in need, an act which is greatly encouraged in Islam and foundational to the way we should operate as a society. It beautifully summarises the way in which we should conduct ourselves when it comes to our finances, wealth and generosity.

“Who is he that will give Allah Qard Hasan? For Allah will increase it manifold to his credit.” (Qur’an 57:11)

“If you give Allah Qard Hasan … he will grant you forgiveness.” (Qur’an 64:17)

“Establish regular prayer and give regular charity and give Allah Qard Hasan.” (Qur’an 73:20)

Yet, when you try to apply this concept in the modern world, you find that everything around us is in direct opposition to it. Not only does an inflationary monetary system structurally discourage such behaviour, it actively punishes it. In a fiat system, there is a financial penalty for generosity. A financial penalty for conducting your affairs in accordance with Allah’s will.

Now that penalty alone shouldn’t be enough to discourage Muslims from giving Qard Hasan. Many of the things that are most pleasing to Allah require us to endure some kind of hardship and sacrifice in the process. If a borrower in a Qard Hasan arrangement can’t repay in full, you’re encouraged to extend the loan or forgive some of the debt; an act which itself serves as a further display of generosity, and would amount to little more than a financial inconvenience to the lender, when dealing with sound money that increases your purchasing power over time. But the money today - fiat money - is so broken, and the system so exploitative, that the hardship and sacrifice required for a believer to provide for his or her immediate needs, and the needs of their families, whilst avoiding major sin in the process, leaves very little left over for such considerations.

For me, it served as the clearest and most vivid illustration of how the monetary system of today is incompatible with the teachings of Islam. It’s a simple and powerful contrast. One side encourages you to lend to those who need it and receive back what you lent, sacrificing only the facility of obtaining additional enjoyment for a temporary period of time. The other side not only discourages this simple act, it encourages anyone who does lend to engage in the major sin of Riba, or otherwise risk being unable to provide for themselves and their own families, as they watch the price of everything rise, whilst their wealth erodes… Act too generously, and you may find yourself being the next person in your community requiring a Qard Hasan loan.

Muslims really need to understand this and start taking it more seriously. Qard Hasan is just one of many Islamic principles that simply cannot be practiced as intended, at the scale it should be, within today’s monetary system. When asking yourself the question of whether a particular monetary instrument is Halal or Haram, you have to take a look at how it aligns with these core Islamic principles. Does it enable them? Does it encourage them? Or does it punish those who try to fulfil them? Does its very nature oppose everything that we know is right? This is the simple litmus test.

It’s this test that must be applied to Bitcoin when assessing its credibility as an alternative solution. For me, it was a simple assessment. Look at Bitcoin through the exact same lens, and you see something fundamentally different. It is not a tolerable alternative form of money, but the polar opposite of fiat.

Bitcoin is sound money. Its supply is fixed; no one can debase it, no one can print more of it, no one can dilute the holders to fund the reckless spending habits of those in power. Against a money like this, prices fall over time as technology and productivity push the cost of goods and services down, exactly as they should, and the purchasing power of the saver is preserved, if not grown. The lender extending a Qard Hasan loan is no longer punished for his generosity. He gets back the principal he lent, with its purchasing power intact, and the act costs him only what it was ever meant to cost: the use of his wealth, for a period of time. In the absence of the guaranteed erosion of purchasing power, you can see how generosity would be incentivised even further in the case of the borrower struggling to repay the principal in full. There is no loss in real terms to the lender if they choose to forgive a percentage of the loan in such a situation - even a 90-95% repayment of the original amount would leave them financially intact, and their ability to provide for their immediate needs, and the needs of their family, has not been decimated by a bout of printing-induced inflation.

Bitcoin passes this test. And what holds for Qard Hasan holds for the Waqf, for Sadaqah at scale, and all the other ways in which we are expected to devote our economic energy. An Ummah on a Bitcoin standard is an Ummah that is better able to uphold our obligations and conduct our affairs in accordance with the teachings of Islam.

Burying our heads in the sand and telling ourselves that this is “just the way things are”, that “we don’t have any other choice”, or that “the system is designed this way and we can’t change it”, is frankly no longer an acceptable stance to take. There is now an alternative available to us, and every single Muslim has a responsibility to assess the options available against the teachings of our religion, and ask themselves the hard question:

Am I doing everything in my power to conduct my affairs in accordance with the will of Allah SWT? Or am I succumbing to a system that destroys the values I’m responsible for upholding?

And if the answer is the latter… why am I doing this?

Is it because I don’t want to face the inconveniences and hardships that may have to be endured in rejecting a system which, at its face, feels so cosy and convenient? Is it because I don’t want to face a situation in which I have to admit that I am now choosing to engage in something I know is wrong? Is it because facing this reality would mean taking responsibility for making significant changes to something I’m so accustomed to?

Or, is it just because I don’t want to have to think about these things? Is it because I would rather offload my decision-making onto someone else, instead of taking the time and responsibility to make my own informed assessment of such important matters? Is it because I watched an uninformed soundbite of a sheikh telling me Bitcoin is haram, and that helps me sleep better at night?

The reality is, there is now a choice, because there is now an alternative; which means that refusal to explore it, is choosing to ignore it.

There will come a day when every single one of us will be asked about our choices. What did we do once we were aware of how this system worked? Did we do our best to take the action needed? Is your choice one that you will be willing to stand by then? Whatever answer you give now, picture offering it then. Picture standing in front of Allah SWT and saying it out loud.

If you can’t, you already have your answer.