Bombing Al-Qard Al-Hassan offices: A blow to Hezbollah or to Lebanon’s economy?

Earlier this month, the Voice of America (VOA) media network published an investigation suggesting that Hezbollah's funds were beginning to run out after weeks of ongoing Israeli strikes on Lebanon, which have disrupted the party's three main financial resources.

According to the US Treasury Department reports and claims by researchers based in both the US and Lebanon who contributed to the investigation, published on October 11, 2024, Hezbollah’s key funding sources are divided into three categories:

First: The “licensed but struggling” Lebanese banks, which Hezbollah uses to access the international financial system.

Second: Airplanes loaded with cash from Iran arriving at Beirut’s international airport.

Third: The largest source, Al-Qard Al-Hassan Association (AQAH) and the funds that flow into it from various sources.

Al-Qard Al-Hassan's losses

On Sunday, October 20, 10 days after the aforementioned investigation was published, Israeli airstrikes targeted 16 branches of Al-Qard Al-Hassan across Lebanon. These branches contained cash and gold bars people had deposited as collateral for loans, as well as Hezbollah’s own funds.

An American site published an investigation suggesting that Hezbollah's funds were beginning to run out after the Israeli aggression on Lebanon disrupted the party’s primary sources of income, particularly Al-Qard Al-Hassan (AQAH). Ten days after the report was published, Israeli airstrikes hit 16 of the association's branches.

Since the beginning of Israel’s aggression on Lebanon, questions have arisen about the fate of people’s funds—those who have pawned their gold and jewelry to secure interest-free financial loans—and whether Hezbollah has moved the vaults containing the gold to safer locations. These concerns increased after Israel’s strikes, but Hezbollah member of parliament Ihab Hamadeh assured Al Mayadeen that depositors with the Al-Qard Al-Hassan Association would not lose a single penny. Hezbollah also claimed that the gold and funds were unaffected by the strikes and remain “intact.”

Initial estimates suggest the institution’s financial losses range between $1.5 billion and $2 billion—a lower figure than expected, partly because some of the funds had already been moved out of Lebanon before the bombing. However, the exact figure remains unclear, as the amount held in these branches was never fully disclosed.

Amnesty International condemned the Israeli attack and said the branches of the Hezbollah-affiliated financial institution are “not military targets.” In a report it published, it said: “The Israeli military’s targeting of branches of Qard al-Hassan, a non-profit financial association affiliated with Hezbollah, with over 30 branches across Lebanon, likely violates international humanitarian law and must be investigated as a war crime. Under the laws of war, branches of financial institutions are civilian objects unless they are being used for military purposes. Therefore, these attacks likely constitute a direct attack on civilian objects.”

Amnesty International condemned the Israeli attack and said the branches of the Hezbollah-affiliated financial institution are “not military targets.” It said: “The Israeli military’s targeting of branches of Qard al-Hassan, a non-profit financial association affiliated with Hezbollah, with over 30 branches across Lebanon, likely violates international humanitarian law and must be investigated as a war crime. Under the laws of war, branches of financial institutions are civilian objects unless they are being used for military purposes. Therefore, these attacks likely constitute a direct attack on civilian objects.”

The bombing of Al-Qard Al-Hassan branches was just one part of several operations that took place that day, which are still ongoing. Israeli and American analysts claim these operations aim to sever Hezbollah’s financial supply lines. The group has already lost many of its senior commanders over the past month, along with part of its rigid and successful administrative structure.

Earlier in the week, the Israeli military announced that it had killed the head of Hezbollah's money transfer unit in an airstrike in Syria late Monday night. Described as “the keeper of the keys to Hezbollah’s finances and secrets,” he had been accused internationally and regionally of trafficking funds and funneling the profits to the group.

Before the day ended, Israeli army spokesperson Avichay Adraee tweeted an image of a location in Beirut’s southern suburbs, alleging it held hundreds of millions of dollars and gold that had been “taken from the citizens of Lebanon.”

What is Al-Qard Al-Hassan association?

Hezbollah founded the Al-Qard Al-Hassan Association (AQAH) in 1982 as a charitable institution offering interest-free Islamic loans to Lebanese citizens, particularly the Shia community. Borrowers are only required to repay the original amount. However, individuals must open a "participation" account with the association, which involves paying a small monthly subscription. Through this account, members gain access to loan services. The longer an individual maintains their subscription, the greater their chances of obtaining larger loans.

Despite the Israeli bombing of Al-Qard Al-Hassan branches, the association has announced that depositors will not lose a single penny, assuring that both the money and gold are safe.

Typically, loans are secured by collateral, such as gold, or backed by guarantees from other members. Members of the association can provide mutual guarantees to facilitate loan access. This setup currently puts the foundation and the party directly in confrontation with borrowers who pawned their gold as collateral, as well as with depositors and savers.

In headlines that strike a painful chord, various newspapers have covered these blows to Al-Qard Al-Hassan, with titles like "Israel Burns Hezbollah's Vaults," "The Fate of the Gold," and "Funds Vanished."

A similar scenario unfolded during the 2006 war, when Al-Qard Al-Hassan had nine branches across Lebanon, three of which were destroyed. Yet, financial operations and member funds were unaffected, since the gold reserves were kept in a secure location. The question remains: Is the association's and the party’s financial position today as resilient as it was back then? And can they weather the current crisis as they did previously?

From the early 1980s until 2022, Al-Qard Al-Hassan carried out a total of $4.3 billion in lending and deposit operations, with a significant rise in recent years as it benefitted directly from Lebanon's banking financial distress after the people’s deposits and savings were withheld by the banks.

As the financial crisis deepened and the Lebanese lira began to plummet in 2020, some borrowers whose incomes were in lira but were paying in US dollars faced difficulties. In response, Al-Qard Al-Hassan allowed them to repay in Lebanese pounds, reflecting the party’s strong financial position at the time. This move bolstered confidence in the institution when trust in other banks was diminishing.

Could Hezbollah go bankrupt?

Diverging opinions emerge daily, attempting to answer whether these setbacks will impact Hezbollah's financial capacity and what strain "impoverishment" might place on the loyalty of its Shiite support base, which relies heavily on Al-Qard Al-Hassan—the conduit for the party’s funds.

Lebanese journalist specializing in economic affairs Mounir Younes observes, “Hezbollah is now essentially a struggling institution. It's unclear whether the gold reserves are still in place, given that there are financial loans backed by gold, although there were claims that the gold reserve was stored at Hezbollah's central headquarters, the same location where its leader Hassan Nasrallah was assassinated in Beirut’s southern suburbs.”

He adds, “There are borrowers who want to repay their loans, and some of them have been displaced or have lost their businesses. Additionally, donors, who have been a critical source of funding, are also facing hardship. In effect, Al-Qard Al-Hassan and its borrowers, whether those with gold collateral or contributing members, are now in a state of financial distress due to the Israeli aggression on Lebanon. The question now depends on Iran’s support for the institution and whether it will be permitted by international bodies to compensate for these losses.”

During the 2006 war, Al-Qard Al-Hassan had nine branches across Lebanon, three of which were destroyed. Yet, financial operations and member funds were unaffected, since the gold reserves were kept in a secure location. The question remains: Can the association weather the current crisis as it did previously?

Younes believes that the fate of tens of thousands of borrowers hinges on whether Iran will be internationally permitted to compensate and rebuild Al-Qard Al-Hassan. He explains that there are winners and losers among the borrowers: those who took out loans and pawned their gold as collateral will keep their money, while those who pawned gold and have already paid off much of their loans may lose out, depending on the period and when the person took the loan.

According to the economic expert, “Al-Qard Al-Hassan has authorization from the Ministry of Interior but not from the Lebanese Central Bank. Deposit and lending operations require a license from the Central Bank. If Al-Qard Al-Hassan is engaging in deposit-taking and lending, then it operates outside the formal Lebanese financial system and the global financial network, essentially acting as an independent entity.”

He concludes, “Historically, a segment of the Shiite community couldn’t open bank accounts for various reasons. When the banking crisis hit and public trust in the local banking sector was lost after the banks withheld people’s money and savings, many Shiites turned to Al-Qard Al-Hassan. Consequently, some argue that Al-Qard Al-Hassan has had a negative impact on the banking sector.”

Partially disagreeing, Joseph Daher, a professor of political economy at the University of Lausanne and author of the book, The Political Economy of Hezbollah, doesn’t consider Hezbollah’s financial policy a primary cause of Lebanon’s economic collapse. “According to its website, Al-Qard Al-Hassan has provided over $4.3 billion in loans since 1983, totaling more than two million loans. As a microcredit institution, it may help people financially by enabling them to buy goods or participate in small services or economic projects, but it doesn’t have a substantial developmental impact or play any development role on a large scale,” he explains. “Although the institution may engage in money-laundering schemes that have expanded amid the financial crisis and the growth of the cash economy, it is not at the root of Lebanon’s economic collapse nor a major contributor.”

Speaking to Raseef22, Daher adds, “The roots of Lebanon’s economic crisis lie in the country’s political economy and the way it has evolved since the end of the Lebanese civil war. Initially spearheaded by Rafic Hariri, who nominated Riad Salameh as Central Bank governor in the 1990s and made him something akin to his personal banker, this approach set up the Ponzi-like scheme run by Lebanese banks, which offered high-interest rates to attract dollar deposits, then loaned this money to the government, which led to the 2019 crisis.”

Daher explains, “Lebanon’s political economy has focused on deeper integration with the global economy, alongside private sector growth. These neoliberal policies strengthened certain historical features of Lebanon’s economy—a development model centered on finance, real estate, and services. Social and regional inequalities became apparent, and although Hezbollah did not align itself with this political economy, it participated in its dynamics. Al-Qard Al-Hassan became the largest microfinance organization in the country, expanding its activities after the financial crisis began in October 2019.”

A Lebanese charity

These strikes against one of Lebanon’s most resilient economic institutions received a clear nod from the United States. In 2007, the US Treasury imposed its first sanctions on Al-Qard Al-Hassan under Executive Order 13224, targeting entities linked to “financing terrorist activities,” as it claimed.

According to the US explanation, Al-Qard Al-Hassan allegedly serves as a financial cover for Hezbollah, providing it access to the international financial system. In 2021, additional sanctions were imposed on seven employees, with the US Treasury noting:

“Al-Qard Al-Hassan (AQAH), which was designated by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) in 2007, is used by Hezbollah as a cover to manage the terrorist group’s financial activities and gain access to the international financial system. Ibrahim Ali Daher (Daher) serves as the Chief of Hezbollah’s Central Finance Unit, which oversees Hezbollah’s overall budget and spending, including the group’s funding of its terrorist operations and killing of the group’s opponents. The other six individuals designated today used the cover of personal accounts at certain Lebanese banks, including US-designated Jammal Trust Bank (JTB), to evade sanctions targeting AQAH and transfer approximately half a billion US dollars on behalf of AQAH.”

Director of the Office of Foreign Assets Control Andrea Gacki remarked, “From the highest levels of Hezbollah’s financial apparatus to working level individuals, Hezbollah continues to abuse the Lebanese financial sector and drain Lebanon’s financial resources at an already dire time. Such actions demonstrate Hezbollah’s disregard for financial stability, transparency, or accountability in Lebanon.”

While cutting off Hezbollah’s funding may appear to be the main motive, disrupting the social cohesion of the Shiite community—which underpins Hezbollah’s political and military unity—might be an even more significant long-term gain for its enemies.

As for the Israeli perspective, the Israeli Alma Research and Education Center published an extensive study on Hezbollah’s economic activities, including Al-Qard Al-Hassan. It states:

“The funds that Hezbollah distributes as donations to Lebanon’s Shi’ite population come from four main sources: Hezbollah’s budget is largely funded by Iran, Hezbollah’s illegal economic activity, donations collected among Shi’ite communities around the world (especially Europe, Australia and South America), and donations collected from the Shi’ite population in Lebanon. It is important to note that not all of the donations actually reach their civilian purposes, i.e., the Shi’ite population, part of the funds are intended for Hezbollah’s military infrastructure. The donation enterprise aims to strengthen the Shi’ite civilian infrastructure on which Hezbollah relies. This civilian infrastructure is actually the foundation of Hezbollah’s military infrastructure, and in fact, the military infrastructure does not have the capability to exist without the civilian infrastructure.”

Would Lebanon's economy be affected by the collapse of Al-Qard Al-Hassan?

Al-Qard Al-Hassan employs nearly 500 people and operates around 30 branches across the country, mostly in Shiite-majority areas but also in some mixed communities. With over 400,000 members, the association provided more than 200,000 small loans totaling $500 million in 2019 alone. This makes its potential collapse a “domino effect” event, where the full economic impact would unfold gradually.

Therefore, while cutting off Hezbollah’s funding may appear to be the main motive, disrupting the social cohesion of the Shiite community—which underpins Hezbollah’s political and military unity—might be an even more significant long-term gain for its enemies.

In an interview with CNN, a senior Israeli intelligence official confirmed that the goal behind Israel’s targeted strikes on Al-Qard Al-Hassan was to "destabilize the Shiite community’s trust in the armed group."

In an interview with CNN, a senior Israeli intelligence official confirmed that the goal behind Israel’s targeted strikes on Al-Qard Al-Hassan was to "destabilize the Shiite community’s trust in the armed group." The Israeli military also stated that it attacked the association’s branches because they "hold funds used directly to finance the activities of the armed group."

Whether or not Al-Qard Al-Hassan has played a genuine role in Lebanon's economic downturn and banking crisis, one thing is certain: its collapse—or even weakening—would not improve the economy. The cessation of salaries and the halt of small loans would only worsen the situation.

Joseph Daher argues: “What the Israelis are claiming is false; Hezbollah's primary financial source is Iran, and let’s not overlook Hezbollah's external projects in the formal and informal economy, including the shadow economy. There is a kind of Hezbollah civil society built on ideology, and it has established its dominance through these services, with Iran playing a key role here.”

He continues, “However, after the 2006 war, Hezbollah gained additional financial resources, particularly after the Syrian war, through smuggling and Captagon production. Businessmen associated with the group, money laundering, and financial transfers from abroad also play a role. The critical question now is: Will Hezbollah be ready for reconstruction, in terms of services and finances? Unlike in 2006, when Gulf countries funded reconstruction, the situation today is vastly different, creating a challenge for Iran. If Iran cannot fill this gap and rebuild Hezbollah’s infrastructure, there may be growing discontent within Hezbollah’s support base, potentially leading to opposition or defection.”

Daher concludes, “Some believe that the Hezbollah project has reached an end, but I disagree. While significant challenges exist, Hezbollah’s popular base lacks a political alternative. I don’t see the Lebanese Forces or Kataeb (Phalanges) as viable options for its support base, especially in the absence of a strong state. For now, Hezbollah remains the only choice for them, and Iran’s role post-conflict will be crucial in rebuilding. The question remains: Can they achieve that?”