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Contrary to the conventional banking institutions that impose compounding penalty, Islamic bank institutions in Malaysia will only impose compensation for actual loss suffered by the bank as a result of negligence of its customers. Yet charging more than the amount of principal debt is controversial in Islam because it is tantamount to the prohibited usury (riba). At the same time not charging anything at all for the failure of the customers to fulfill obligations will give rise to some problems such as bank losses and moral hazard. Hence, the legal position of the imposition of compensation (ta’wid) for the deferment or failure of the customer to fulfill obligation should be evaluated not only in terms of technicality in the contract, but also in terms of the objective of shariah (maqasid al-shariah). This paper aims to evaluate and analyze this issue based on the doctrine of maqasid al-shariah to get a comprehensive and fair view for both parties, customers and Islamic banking institutions. To achieve this goal a qualitative analysis based on the discipline of Islamic law (fiqh) and the doctrine of maqasid al-shariah will be carried out. The study confirmed that the imposition of ta'wid has its justification if it was done based on the actual losses incurred by the bank or at the nominal amount for the sake of avoiding morale hazard among customers. In the event banks need to impose a penalty which is not based on the actual losses, then the proceed should not be regarded as bank’s income, instead, it should be channeled to charity organizations. In any case, banks need to evaluate the real position of the customer whether a genuine incapable debtor or just a negligence defaulter.
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In-Text Citation: (Abdullah, 2018)
To Cite this Article: Abdullah, A. (2018). Late Payment Treatment in Islamic Banking Institutions in Malaysia: A Maqasid Analysis. International Journal of Academic Research in Business and Social Sciences, 8(11), 30–43.
Copyright: © 2018 The Author(s)
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