There is no point having a strict cancellation policy if you feel the right thing to do is refund a guest when they cancel.
If you want to do this, you might as well have a moderate or flexible policy.
I have a strict policy and if I think I am likely to get a new booking I would suggest to the guest that IF I am able to rebook I would consider a refund for my portion of the booking fee, for any days that might be rebooked.
This will be returned after the replacement booking days place (as there is always a chance these guests could cancel too).