QARD-AL-HASSAN AS A TOOL FOR POVERTY ALLEVIATION: A CASE STUDY OF THE FAEL KHAIR WAQF PROGRAM IN BANGLADESH

Abstract

The central focus of the Islamic economic system is on socioeconomic justice and the
overall welfare of society, especially at the bottom of the pyramid segment. Qard-al-
Hassan, alongside zakat and sadaqah, is one of the instruments for the redistribution
of income and wealth from the rich to the poor in Islam. In 2007, Bangladesh was
struck by super cyclone SIDR, leaving 3,406 people dead. Moreover, SIDR caused
unprecedented damage to homes, crops and livelihoods. The Fael Khair Waqf (FKW)
Program came as a response to the urgent need to assist the victims of the cyclone and
initiated an interest-free micro-loan (Qard-al-Hassan) scheme to restore the livelihoods
of a large segment of the victims and to lift them out of poverty. While investigating
the effectiveness of Qard-al-Hassan in poverty reduction, this paper also examines
the FKW program as a case study. Analysis was conducted of 1600 households using
an independent sample t-test and logistic regression to investigate to what extent the
program has been effective in reducing poverty. The findings of the logistic analysis
are that the probability of being poor for FKW participants is around 1.46 times lower
than for non-participants. Moreover, the Qard-al-Hassan of FKW lowers the cost of
borrowing significantly and hence participants can accumulate more assets, which
might help them to improve their economic status. Overall, the effectiveness of the
program implies that development practitioners and researchers should promote the
outreach of Qard-al-Hassan so that the extreme poor can easily avail themselves of the
services.