The optimisation of Qardhul Hasan management in Islamic banking: enhancing its role in empowering the community

Abstract

PurposeQardhul Hasan (QH) is a type of Islamic contract that prioritises benevolent aspects between beneficiaries and the fund provider. The effective management and distribution of QH can contribute to overcoming economic problems in society. This study aims to explore the potential to enlarge the sources of QH funding and QH financing in Indonesian Islamic banks. The paper proposes a framework for QH management in Islamic banks by identifying the sources of QH funds as well as the management and potential allocations of QH funds.Design/methodology/approachThis study uses a descriptive analysis method with a framework-based review to discuss the strategy of optimising the sources, financing and management of QH in Islamic banks. The implementation of QH in the Islamic banking industry is described based on the previous literature and current phenomena.FindingsTo positively impact economic development, Islamic banks can collaborate with parties that are more focused on charitable activities and have greater resources to channel and use QH funds. This study also formulates a framework of QH funds management that prioritises efforts to multiply benefits for both the fund provider and the beneficiaries.Research limitations/implicationsThe descriptive method used in this paper comprises preliminary research to analyse the current phenomena and potential strategies that can be implemented. Future studies may use empirical data to strengthen the analysis.Practical implicationsThe recommendations of this paper can be used by relevant social fund management institutions in collaboration with Islamic banking.Social implicationsQH reflects not only the social aspects of Islamic banks and extends beyond their corporate social responsibility activities, its effective management will make a greater contribution to reducing the level of unemployment, poverty alleviation and supporting the country’s economic development.Originality/valueThis paper provides a framework that integrates financial institutions in maximising QH fund management to encourage greater benefits for the community. Although previous studies have mentioned the important role of QH, relatively few have considered how Islamic banks maximise its management.