Sale-based contracts

Ta'widh (compensation for actual loss)

Compensation for the actual loss a creditor suffers from late payment, accepted by some authorities and rejected by others.

Ta'widh is compensation for actual loss. In Islamic financing it refers to an amount a creditor may charge a defaulting customer to cover the loss the delay actually caused. Bank Negara Malaysia's Shariah Advisory Council allows institutions to receive compensation for actual loss and directs any penalty amount above that to charity, while AAOIFI's standard on the procrastinating debtor does not permit stipulating financial compensation for delay, allowing instead an undertaking to donate to charity and recovery of collection expenses. Late-payment features therefore have to follow the governing authority's position.

Sources

This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.

Related terms

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.Riba al-nasiahRiba of deferment: an increase stipulated in return for extra time, most commonly on a loan.MurabahaA sale at cost plus an agreed, disclosed profit; the seller must own the asset first. Payment is often deferred in instalments.Bay al-muajjal (deferred-payment sale)A sale in which the goods are delivered now and the price is paid later, in one sum or in instalments.