Gharamah (late-payment penalty paid to charity)
A penalty for late payment that the creditor may not keep as income and must direct to charitable purposes.
Gharamah is a penalty imposed on a debtor for late payment, on the understanding that the creditor does not keep it as income. Bank Negara Malaysia's Shariah Advisory Council allows late payment charges built on a combination of gharamah and ta'widh, with the portion above actual loss channelled to charity. AAOIFI's standard on the procrastinating debtor allows a contract to include the debtor's undertaking to donate an amount to charity through the institution if it delays. In both cases the amounts must be tracked separately from income and their charitable use evidenced.
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This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.