Late Payment Penalty: Ta’widh And Gharamah Imposed To Debtor From The Shariah Perspective

Abstract

Islamic financial institutions had face problems and barriers such as the problem of delayed financing settlement (for any reason), where it is not possible to impose any interest due to the delay or the cessation of settlement which practiced in conventional banks due to riba’ prohibited (haram) in Shariah principles. This situation is more detrimental when some customers who purposely delay payment of their debts or purposely refuse to pay due to the absence of rules concerning penalty for late payment in Islamic banks. As a result, the Islamic banks had fail to achieve their targeted profits when the problem of debt payment occurs, the Islamic banks have to bear all the losses and finally face difficulties in achieving sustainability and lose out in their efforts to compete with the conventional banks which accept time-based interest for every default late payments of debts. This study aims to discuss the permissibility of late payment charges by way of ta’widh and gharamah from the Shariah perspective and to find the applicable law in Malaysia. Besides, the implementation of ta’widh and gharamah can be described as in the resolutions of the Shariah Advisory Council of Bank Negara Malaysia (SAC). Further, it will elaborate on how related this late payment charges with the concepts of Shariah, Maqasid of Shariah and Maslahah according to judgement of the fundamentals of the Islamic Jurispendence. Lastly, it will also discuss on how the imposition of ta’widh and gharamah is different from riba for deferred debts in Islamic financial institutions.

Sharīʿah scrutiny of Islamic Banks' Financial Compensation Fund in Bangladesh: governance principles in the COVID-19 perspective

“…In English, ta‘wīḍ (التعويض) is known as “Compensation” (Binti Zulkipli, 2019). According to Hornby and Turnbull (2010) from Oxford Advanced Learners' Dictionary, compensation is something, especially money, that somebody gives you because they have hurt you, or damaged something that you own.…”

“…SAC BNM (Sharīʿah Advisory Council of Bank Negara Malaysia) passed a Sharīʿah resolution in this context on May 20, 2010. The actual loss recovery method is described in that resolution as said above (Binti Zulkipli, 2019, p. 188).…”

“…Gharamah is of two kinds (Al-Suwailem, 2009). They are Al-Gharamah al-Ta‘zīriyyah (الغرامة التعزيرية): Penalty or punitive fine which is imposed due to the violation of any law (Binti Zulkipli, 2019). It is generally imposed by the authority or the government and pre-determined against the breach of certain laws.…”

“…The question arises if there is any financial loss that incurs due to the late payment or not. First, the opinion of collecting actual loss is an isolated view of five/six individuals amongst a large assembly of scholars (Binti Zulkipli, 2019, p. 194) [18]. Second, the conditions they provided on the execution of this measure are nearly impossible.…”

The Islamic Credit Card Based on Ujrah Concept:

“…According to AAOFI and Abd Sattar Abu Ghuddah, the penalty charge is permitted for the late payment but it should be channelled to charity as the debtor donated as sadaqah (Binti Zulkipli, 2019).…”