TA’WIDH: AN ANALYSIS OF ISSUES ARISE IN LIGHT OF RECENT DECIDED CASES IN MALAYSIA

Abstract

This study investigates the issues that have come into light in regards to the application of Ta’widh and Gharamah by the Islamic financial institutions (IFIs) in Malaysia. The concept of charging penalty on customers who failed to make repayment of Islamic financing as scheduled has been introduced by the Bank Negara Malaysia (BNM) through their guideline in 1998 but the concept of Ta’widh and Gharamah was introduced in 2010 and only in 2012 that the guideline which explains the method of calculation of the Late Payment Charge (LPC) which consists of Ta’widh and Gharamah was introduced. The application of LPC, especially Ta’widh which is allowed by the BNM to be included in profit distributable to the depositors and investors has to be treated by the IFIs with utmost precautions as mistakes in the application may expose the IFIs towards the risk of Shariah Non-compliance (SNC). The study adopts a qualitative method of study where data which is the reported court cases were obtained from online databases such as Lexis Advance Malaysia and CLJ Law and journal articles that helps in the process of analysing the data were acquired from results in search engines such as Google and Google Scholar. This study suggests that the knowledge in Ta’widh and Gharamah is yet to be fully acquired by the contracting parties. In hope to play a part in the development of the Islamic finance industry in Malaysia, the study is significant in ensuring any discrepancy between the issuance of SAC BNM’s regulations and its application by the IFIs is addressed and consequently helps in reducing the risk of SNC.