Hiba, in the context of banking, is a legal term used in Islamic finance, particularly in Sharia-compliant banking. It refers to a gift or donation that is given unconditionally and without any expectation of return. This is distinct from conventional loans, where the lender expects repayment with interest.
Here's how Hiba works in banking:
- No Interest: Unlike conventional loans, Hiba transactions involve no interest.
- Unconditional Gift: The giver (donor) gives the gift without expecting anything in return.
- Sharia Compliance: Hiba adheres to Islamic principles that prohibit usury (riba) and interest.
Examples of Hiba in Banking:
- Waqf: A form of Hiba where a donor dedicates an asset (like property or money) for a specific charitable purpose, such as building a mosque or funding education.
- Zakat: The annual obligatory alms-giving in Islam, often channeled through Islamic banks, is considered a form of Hiba.
Practical Applications:
- Microfinance: Hiba can be used to provide small, interest-free loans to individuals or businesses, particularly in developing countries.
- Social Welfare: Islamic banks can utilize Hiba to fund social welfare projects, such as providing food, shelter, or healthcare to the needy.
Understanding Hiba:
It's essential to distinguish Hiba from other Islamic financial instruments like Qard (loan), where repayment is expected, or Mudarabah (profit-sharing), where both parties share profits and losses. Hiba is a unique concept in Islamic banking that allows for charitable giving and support without the complexities of interest-based transactions.
