Non Interest Bearing Loans

Non Interest Bearing Loans

Some financial systems for cultural and/or religious reasons require loans to be handled in a way in which interest is not used as the basis for the institution providing the loan profiting from the transaction. In these loans both the lender and the borrower usually share the risk of the loan. In many cases this type is handled by a transfer of equity to the lender (or a trustee who holds the equity on behalf of the investor(s) and issues a document similar to a bond/promissary note), who then shares in the profit of the enterprise in an agreed manner and timing which is in agreement with the cultural and/or religious practices. The arrangements regarding profit sharing can usually be varied by agreement between the parties during the course of the loan. On maturity of the loan as specified in the contract, the borrower can purchase the lender's equity on terms agreed in the contract and the proceeds are paid to the investor or renegotiate the loan arrangement. These loans cannot be traeted as a zero interest loan.

Here we want to address how GnuCash may be used to record a loan of this type. The dependence of the payments to the lender on the profit of the enterprise make the calculation of a schedule of payments where the timing and amount of the payments is specified in advance impossible