Penalty for Late Payment: The Study of Shariah Risk in Islamic Housing Products in Malaysia

Abstract

The Islamic banking scheme has become an alternative to the conventional banking scheme since conventional banking is based on riba, that strongly prohibited by Shariah. Islamic banking scheme charges profit through Islamic-authorised sale and leasing transactions between banks and customers. However, through the sale and leasing transactions entered into, the customer is also required to purchase and rent in instalments as specified in the contract. If the client is late paying the specified instalment, how does the bank engage with it? Hence, the study to identify the management of Shariah risk by selected banks through the practice of Islamic housing financing contracts in dealing with the issue of customer default. This study was conducted qualitatively using two main methods: library research and the unstructured interview method. The library research method is applied to build the research theory by reviewing related literature and official websites. As for the interview, it is conducted to obtain primary data on the practice of late payment fines namely ta’wid (compensation) and gharamah (penalty) in selected banks. The researchers apply a purposive sampling method in conducting the interview technique by interviewing experienced and knowledgeable respondents regarding the issue. As a result, this study found that out of the six banks surveyed, only two banks impose two both ta’wid and gharamah, while the other four banks prefer ta’wid fines. The study also found that the Shariah risk solution to the practice of charges imposed by banks is based on the stipulation set by Bank Negara Malaysia (BNM). This can be learned that only the government can fine offenders through the concept of ta’zir and BNM has delegated its power to the bank to carry out the charge to defaulting customers.