The contemporary Shariah scholars have evolved a consensus that banks are authorized to impose late fees on the delinquent. But proceeds of such penalty are to be used for charity purposes. Only the court or any independent body can allocate any part of the penalty as liquidated damages / solatium for the banks.
Liquidated damages can be given to banks in case of default on the part of banks’ clients provided it is based on actual financial loss. The court may reasonably adjust the amount of compensation. The ‘actual financial loss’ cannot be the loss in terms of conventional ‘opportunity cost’. It has to be proved by the bankers themselves to the satisfaction of the court or any arbitrator. However, some Shariah Boards allow Islamic banks to charge from the defaulter the rate realized by them on their Murabaha portfolio during a specific period. They also recommend that the financial condition of the client be taken into account.
Liquidated damages can be given to banks in case of default on the part of banks’ clients provided it is based on actual financial loss. The court may reasonably adjust the amount of compensation. The ‘actual financial loss’ cannot be the loss in terms of conventional ‘opportunity cost’. It has to be proved by the bankers themselves to the satisfaction of the court or any arbitrator. However, some Shariah Boards allow Islamic banks to charge from the defaulter the rate realized by them on their Murabaha portfolio during a specific period. They also recommend that the financial condition of the client be taken into account.
Article Collected from State Bank Of Pakistan web site www.sbp.org.pk
