Hibah

A voluntary gift given without any expectation of return or consideration. In Islamic banking, hibah is used by some institutions to provide returns on savings and current accounts without characterizing them as interest.

The bank holds deposits under a wadiah (safekeeping) or qard (loan) arrangement and may give account holders a discretionary hibah (bonus) based on the bank's performance. Because the hibah is voluntary and not guaranteed, it is not considered riba.

Hibah is a gift — a voluntary transfer of ownership without consideration — and in Islamic banking it does specific technical work: it is the only halal way a bank can reward depositors without promising a return. Because a guaranteed or pre-agreed payment on deposited money would be riba, Islamic banks holding funds in wadiah (safekeeping) or qard (loan) form may pay depositors a discretionary hibah — genuinely at the bank's discretion, variable, and never contractually owed.

Malaysian Islamic banks use this extensively on savings accounts; the model appears in U.S. Islamic banking programs as well. The Shariah tension is obvious and scholars police it: if a 'discretionary' hibah becomes so regular and rate-benchmarked that depositors rely on it, it starts to function as interest, which is why AAOIFI-aligned boards require that hibah not be promised, advertised as a rate, or customary to the point of expectation.

Beyond banking, hibah matters in family wealth planning: lifetime gifts are the main Shariah-compliant way to allocate wealth outside Faraid's fixed shares (a parent can gift a struggling child during life what the fixed shares would deny at death), with the important adab that the Prophet instructed parents to be equitable among children in gifts (Bukhari). U.S. gift-tax rules (annual exclusion, lifetime exemption) layer on top and make documentation worthwhile.