Is It Permissible to Impose Financial Penalties for Delayed Debt Repayment?
Answered By Shaykh Dr. Muhammad Fayez Awad
Question
What are the rulings regarding the delayed repayment of a debt? Is it permissible to impose a financial penalty?
Answer
In the name of Allah, the Most Gracious, the Most Merciful.
All praise is due to Allah, Lord of all worlds. Peace and blessings be upon the Messenger sent as a mercy to the worlds, our Master and Prophet, Muhammad, and his Family and Companions.
The Obligation of Timely Debt Repayment
A debt must be repaid when it is due, and it is forbidden for the debtor to procrastinate or delay payment unless the creditor waives the debt, reduces it, or extends the repayment deadline.
Prohibition of Imposing Financial Penalties
It is not permissible for the creditor to impose a financial penalty on the debtor, as this would be considered a loan that brings a benefit, which is unanimously prohibited in Islam. This is based on the hadith: “Every loan that brings a benefit is riba (usury).” [Bayhaqi, al-Sunan al-Kubra]
This ruling applies regardless of whether the creditor is an individual or a legal entity (such as an institution).
The Islamic Fiqh Council Resolution
A resolution was issued by the Islamic Fiqh Council of the Muslim World League in its eleventh session, held in Makka from Sunday, 13th Rajab 1409 AH to Sunday, 25th Rajab 1409 AH, regarding the imposition of financial penalties for delayed payments. The resolution stated:
“If a creditor stipulates that the debtor must pay an additional sum of money as a specified financial penalty, or a certain percentage if they delay repayment beyond the agreed-upon date, then such a stipulation or imposition is invalid, and it is not obligatory to fulfill it. Moreover, it is not permissible, whether the stipulator is a bank or any other entity because this is essentially the riba (usury) of the pre-Islamic era, which was prohibited by the Quran.”
May Allah bless the Prophet Muhammad and give him peace, and his Family and Companions.
[Shaykh] Dr. Muhammad Fayez Awad
Shaykh Dr. Muhammad Fayez Awad, born in Damascus, Syria, in 1965, pursued his Islamic studies in the mosques and institutes of Damascus. A graduate of the Islamic University of Medina in 1985, he holds a Ph.D. in Islamic Studies from Bahauddin Zakariya University in Pakistan.
He has extensive experience developing curricula and enhancing the teaching of various academic courses, including conducting intensive courses. Shaykh Awad has taught Fiqh, Usul al-Fiqh, Quranic sciences, the history of legislation, inheritance laws, and more at several institutes and universities such as Al-Furqan Institute for Islamic Sciences and Majma‘ al-Fath al-Islami in Damascus.
He is a lecturer at the Sultan Muhammad al-Fatih Waqf University in Istanbul, teaching various Arabic and Islamic subjects, and teaches at numerous Islamic institutes in Istanbul. Shaykh Awad is a member of the Association of Syrian Scholars, a founding member of the Zayd bin Thabit Foundation, a member of the Syrian Scholars Association, and a member of the Academic Council at the Iman Center for Teaching the Sunna and Quran.
Among his teachers from whom he received Ijazat are his father, Shaykh Muhammad Muhiyiddin Awad, Shaykh Muhiyiddin al-Kurdi, Shaykh Muhammad Karim Rajih, Shaykh Usama al-Rifai, Shaykh Ayman Suwaid, Shaykh Ahmad al-Qalash, Shaykh Muhammad Awwama, and Shaykh Mamduh Junayd.
