Islamic versions of personal loans are based on the Quranic principle that ‘God has permitted trade but forbidden usury’ (2:275). They are structured as sale contracts with the bank’s profit being conceived as a return on legitimate trade rather than as the receipt of a time penalty for the customer having deprived the bank of the use of the money for a period, as with interest.
There is a shortage of ways of advancing cash to individuals at a profit in an Islamically acceptable form. Any institution prepared to do it in a non-profit making form, that is, as a qard hasan, will have the blessing of its advisory scholars but probably not of its shareholders. Companies also have serious problems in meeting their short-term liquidity needs in a shari’a compliant way; this is usually cited as the biggest obstacle to the growth of the Islamic finance industry. However, companies which trade on a large scale are more likely to be able to access acceptable ways and means of providing liquidity. The replacement of interest-based small personal loans is a keenly felt omission in the provision of shari’a compliant finance in the United Kingdom. Most of the banks that have found it worth their while to offer home finance have not felt able to introduce personal finance facilities for their retail customers. Perhaps