An Analysis of Late Payment Charge On Defaulters in Islamic Banking and Finance: A Malaysian Perspective

Abdul Majid Tahir, Mohamed and Mohd Lotpi, Mohd Yusob and Murshamsul Kamariah, Musa (2014) An Analysis of Late Payment Charge On Defaulters in Islamic Banking and Finance: A Malaysian Perspective. Journal of Islamic Law Review, 10 (1). pp. 107-127. ISSN 0973-2918

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Abstract

Under conventional banking, a debtor who defaults in instalment payment or pays later than the agreed time, will have to pay a charge of interest. However, in Islamic banking and finance, such interest is clearly caught by the prohibition of riba. As an alternative to the charge of interest, Islamic financial institutions impose late payment charge on defaults by its customers. This paper analyses the Malaysian experience in imposing late payment charge for defaults arising out of Islamic banking and finance instruments under the present statutory framework. Basis for allowing late payment charge and types of defaulters were also examined. At the end, this paper suggested some suggestions to ensure the administration of late payment charge is more Shari‘ah compliant.

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