Calculation of Service Charges

Ideally the institution helping the distress people through Qard E Hasna should do it as institutions corporate social responsibility, thus should not charge any extra amount (fees or interest) over the actual loan amount. Since the client is not supposed to make money by using the Qard E Hasna for any commercial activity; rather uses it to get out of distress, it is corporate social responsibility of profit making financial institutions to lend Qard E Hasna to poor and underprivileged people from their reserves and surpluses for non commercial emergency needs of the poor and underprivileged people in the society. In case the financial institution is not for profit, and do not have enough reserves and surpluses through other products, it may collect actual / discounted cost of operational expenses from the client because it is unethical that the institution recover cost of lending from the client unless 1. The net income (total income minus total expenditure) of the institution is negative (thus need to recover the net cost of Qard E Hasna from the client); and 2. There is no source of finance to compensate the actual cost of providing Qard E Hasnas by the institution; and 3. At any point of time the proportionate cost of Qard E Hasna to total cost of the institution not exceeding to proportionate share of Qard E Hasna to other outstanding assets of the institution. Under condition that where institution has no surplus or reserve income to discount the cost of Qard E Hasna; and there is no intention of making money through lending, the institution should be allowed to recover the actual cost of rendering Qard E Hasna from the customer. Following method can be used to calculate the actual monthly Service Charges I. II. Total Outstanding Qard E Hasna (OQH) shall be divided by Total Outstanding Portfolio (TOP) to calculate the Percentage of Qard E Hasna to Total Outstanding Portfolio (OQH/TOP). Total Expenditure (TE) shall be multiplied by percentage rate derived through OQH/TOP to calculate the rate of monthly Service Charges (RMSC).

III. RMSC shall be multiplied by OQH to calculate the actual service charges (ASC) payable by the customer for last month outstanding loan amount. An Illustration to explain the procedure of calculating net monthly service charges: A B C D E F G H I Particulars for Calculation of Service Charges Total Outstanding Portfolio (TOP) Outstanding Qard E Hasna (OQH) Qard E Hasna as Percentage of Total outstanding Portfolio (A/B) Total Monthly Expenditure incurred (TME) Recoverable Monthly Service Charges (D*C) Percentage Rate of Monthly Service Charges (RMSC) Outstanding Qard E Hasna to a particular customer Monthly Installment paid (if Rs. 1,000 per month) Actual Service Charges payable by that customer (ASC) for first month Amount 8,000,000 80,000 1.00% 250,000 2,500 1.00% 10,000.00 1,000.00 100.00

Since the rate of Recoverable Monthly Service Charges is calculated every month by using the on time real monthly financial figures from the balance sheets, the actual Rate of Service charges on monthly basis may vary or remain same, depending on outstanding portfolios of Qard E Hasna with respect to actual expenses. The rate of service charges should not be fixed in advance, rather be calculated on actual basis every month before collecting the actual service charges from the customers.