Tawid and Gharamah as Financial Compensation: Application to Corporates and Government Bodies
Tawi? and Gharamah as Financial Compensation:
Application to Corporates and Government Bodies
Rusni Hassan
Jawwad Ali
Fatimah Mohamad Noor
 
Abstract: In spite of the growth of Islamic financial institutions, they have been suffering from troubles due to late payment, which lessen the economic feasibility of these institutions reducing their incomes and capability to compete with conventional banks. Furthermore, payment default is a common phenomenon these days in most societies. Therefore, this article focuses on the different Fiqh approaches to Tawi? (compensation) and Gharamah (penalty) as financial compensation to the lending institution and a form of punishment for the debtor. The article also demonstrates the methods of determining the actual cost for Tawi?. Moreover, the article highlights the implementation of Tawi? and Ghar?mah in Islamic Banks in Malaysia. To achieve this objective, a qualitative approach has been adopted. The article recommends that Islamic financial institutions should avoid charging indirect costs as it is very close to Riba (usuary). The article also proposes that instead of using the word 'Gharamah', it is appropriate to use the phrase 'Iltizam bi al-Tasadduq/al-Tabarru' to proclaim the imposition of financial penalty by government, corporate bodies and even individuals.

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