A Revisit to the Practice of Late Payment Charges by Islamic Banks in Malaysia

Yaakub, Ezani; Adil, Mohamed Azam Mohamed; Husin, Asmak; Muhamad, Mohd Dani; Khalid, Mohammad Mahyuddin; Shahruddin, Mohd Solahuddin

doi:10.17576/pengurusan-2014-42-15

Cited by 11 publications

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“…The Shariah Standards defines default in payment as a delay in the settlement of an obligation or in paying an amount due for payment, without any legitimate reason (AAOIFI, 2017). Contemporary Muslim scholars such as Mustafa Al-Zarqa, Syeikh Muhammad Sadiq Ad-Dharir and Sheikh Abdullah Bin Mani' has agreed on the imposition of ta'widh (compensation) and gharamah (penalty) as the most suitable methods of financial remedies to be adopted for late payments in the Islamic finance industry (Ezani et al, 2014). The tenets of Islamic legal maxims allows for harms caused by financial losses due to payment defaults to be avoided and mitigated (Mohammad Akram, 2014).…”

Section: Ta'widh and Gharamah In Islamic Financing Contractsmentioning

confidence: 99%

“…Hence, Islamic scholars have emphasis on the importance on the calculation of ta'widh and gharamah which includes the time period to impose them for the late payment charges to be legitimate under the (Ezani et al, 2013;Norwajia Umi, Mat Noor, & Salmy Edawati, 2014). Whilst the direct purpose of ta'widh is to compensate for actual losses suffered due to the financial default, the imposition of gharamah as a financial penalty requires careful deliberation to instil discipline amongst debtor in making timely payment (Aishath, Nur Adibah, Ruqayyah, Siti Nadzirah, & Zakariya, 2019;Ezani et al, 2014;Norwajia Umi et al, 2014). Financial penalty seeks to deter the public from committing similar offences (Mohamed Azam & Ahmad Badri, 2016).…”

Section: Ta'widh and Gharamah In Islamic Financing Contractsmentioning

confidence: 99%

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Assessment of Ta’widh and Gharamah in Islamic Financing Contract and Its Applicability Potential for Construction Works Contracts

Hamdan

Sarkawi

Habib

et al. 2020

E-BPJ

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Ta'widh and gharamah are the Shariah compliant late payment charges primarily used for Islamic financial contracts. Seven identified themes were used to qualitatively compare and contrast between the Guidelines on Late Payment Charges for Islamic Banking Institutions (2012) against the provisions of interest for late interim payment from four Malaysian construction works contracts. The findings revealed similarities and differences for identification of Shariah compliance. Recommendations were made for the harmonisation of ta’widh and gharamah in the construction works contracts while ensuring its practical and legal applicability. The outcome is beneficial for Islamic organisations and Muslims involved with the construction works. Keywords: ta’widh and gharamah, late payment, interest,construction, eISSN: 2398-4287© 2020. The Authors. Published for AMER ABRA cE-Bs by e-International Publishing House, Ltd., UK. This is an open access article under the CC BYNC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). Peer–review under responsibility of AMER (Association of Malaysian Environment-Behaviour Researchers), ABRA (Association of Behavioural Researchers on Asians) and cE-Bs (Centre for Environment-Behaviour Studies), Faculty of Architecture, Planning & Surveying, Universiti Teknologi MARA, Malaysia. DOI: https://doi.org/10.21834/ebpj.v5i15.2504.

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Section: Ta'widh and Gharamah In Islamic Financing Contractsmentioning

confidence: 99%

Section: Ta'widh and Gharamah In Islamic Financing Contractsmentioning

confidence: 99%

Assessment of Ta’widh and Gharamah in Islamic Financing Contract and Its Applicability Potential for Construction Works Contracts

Hamdan

Sarkawi

Habib

et al. 2020

E-BPJ

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“…See: https://quran.com/25 16 On the authority of Abu Dharr al-Ghifari (may Allah be pleased with him) from the Prophet ‫)ﷺ(‬ is that among the sayings he relates from his Lord (may He be glorified) is that He said: "O My servants, I have forbidden oppression for Myself and have made it forbidden amongst you, so do not oppress one another….". see: https://sunnah.com/qudsi40/17 study context, Gharamah is a penalty imposed by the IFI on the client for delayed payment of his debt, sans the need to prove the actual losses (Yaakub, 2014).…”

Section: Gharamah (Penalty)mentioning

confidence: 99%

Risk Management of Financial Instruments in Islamic Banks: An Overview

Sakouili¹,

Chroqui²

2019

International Journal of Islamic Economics and Finance Studies

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Risk management plays a major role in the success and survival of various financial institutions around the world. Islamic Financial institutions not being the exception, on the contrary, given the authenticity of their modus operandi and the nature of their financial products, are obliged to use more credible and rigorous risk management systems. A thorough review of the Islamic economy literature based on books, research articles, monographs and reports, was conducted to prepare this study. The main objective is to define and explain the risk management tools (Urboun, Hamish al-Jiddiyah, Khiyarat, Rahn, etc.) used by Islamic financial institutions in financing instruments (Mourabaha, Ijarah, Salam, etc.), in order to unveil their nature and specificity. Which enabled the creation of a summary table presenting the Risk management tools, the products in which they are used and the risks for which they are used.

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“…To provide further detail, it should be mentioned in the contract that if there is a delay in payment, debtors must donate a certain amount of money to charitable bodies, with this concept being defined as gharamah (penalty) [The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), 2010)]. While gharamah is widely applied as a monetary penalty for doing something illegal, but not prescribed its punishment in Sharīʿah, in this case it is considered to be a special penalty for those breaching the agreement by delaying their debt settlement (Yaakub et al, 2014). Thus, it is understood that both taʿwidh and gharamah reflect an alternative mechanism towards an interest-based charge, even though they are slightly different in terms of name and technical aspects with respect to implementation.…”

Section: Introductionmentioning

confidence: 99%

“…Because interest-based charges are prohibited in Islam, alternatively taʿwidh was introduced in 1998 by the central bank (Bank Negara Malaysia, 2010). As then, this regulation has been gradually clarified by Sharīʿah Advisory Council (SAC), particularly in dealing with various type of defaults (Yaakub et al, 2014). Also, it is interesting to mention that over the period, there was a dispute between Islamic banks and customers regarding the implementation of taʿwidh (MK Associates Sdn Bhd v. Bank Islam Malaysia Bhd, 2015).…”

Section: Introductionmentioning

confidence: 99%

Sharīʿah issues on taʿwidh in Malaysia

Ishak

2019

IMEFM

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Purpose This paper aims to investigate the current mechanism of taʿwidh (compensation) from the perspective of Shariīʿah, which is used by Islamic banking in Malaysia to deal with the issue of late payment. Design/methodology/approach This study is qualitative in nature, using semi-structured interviews carried out with two types of informant – members of the National Sharīʿah Advisory Council (SAC) and the Internal Sharīʿah committee (SC) – with regard to practicing taʿwidh. Findings The findings reveal taʿwidh is an alternative to the interest-based late payment penalty, which is prohibited in Islam. While taʿwidh finds justification in the hadith and maʿlaʿah, in respect of sustaining the competitiveness of the Islamic banking operation, its practice is still debatable because it is determined by a special rate instead of the actual loss. This paper addresses this issue by suggesting that even though the central bank has allowed Islamic banks to regard 1 per cent as their income, they should review that amount, and claim only the actual loss. The remaining money could be used for charitable purposes, which can be conducted by Islamic banks themselves. Research limitations/implications This study is limited because it focusses on the extent to which the current practice of taʿwidh in Malaysia has complied with Shariīʿah principles. It does not focus on gharamah (penalty), which is considered to be the second late payment penalty mechanism. Moreover, data are collected from nine interviewees from SAC and SC from different Islamic banks. Thus, the results cannot be generalised to other countries. Originality/value This paper highlights Shariīʿah concerns regarding the current application of taʿwidh. Moreover, as it uses primary data, it provides a fresh discussion of taʿwidh, from both the perspective of regulators in Malaysia and the experience of practitioners, particularly in terms of Shariīʿah compliance.

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A Revisit to the Practice of Late Payment Charges by Islamic Banks in Malaysia

Abstract: Islamic banking in

Cited by 11 publications

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Assessment of Ta’widh and Gharamah in Islamic Financing Contract and Its Applicability Potential for Construction Works Contracts

Assessment of Ta’widh and Gharamah in Islamic Financing Contract and Its Applicability Potential for Construction Works Contracts

Risk Management of Financial Instruments in Islamic Banks: An Overview

Sharīʿah issues on taʿwidh in Malaysia

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