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//Bicara Profesor

Dr. Romzie Rosman
Assistant Professor,
Coordinator for Ph.D and Masters Programme
(Finance and Management)
Academic and International Relations
Islamic Finance: Issues

and Challenges 1.0

Introduction Issues in Islamic Finance Abdullah (2007) highlight that
the majority of scholars view this
The development of Islamic finance Echchabi and Abd. Aziz (2014) penalty charge from the debtor
is widely considered phenomenal examine customers’ perception for the late payment as similar to
(Laldin and Furqani, 2013). regarding current Shariáh issues riba which is prohibited by the
of Islamic banks in Malaysia. They
In countries where Islamic explore the dual banking system Quran.
banks co-exist with conventional in particular. Their findings show
banks, an important criterion that the regulation and supervision Discussion
that differentiates the former of Islamic banks are comparatively
from the latter is its compliance more challenging. This is due Technically, ta’widh means
with the Islamic rules or its to Islamic banking sector being financial compensation paid while
Shariáh compliance (Echchabi relatively new as opposed to the gharamah means fine or penalty.
and Abd. Aziz, 2014). All the established conventional banking Bank Negara Malaysia (BNM)
Shariáh teachings, injunctions sector. Hence, this article critically Shariáh Resolution states that in
and prohibitions are related to examines two underlying issues conventional financial system, the
the grand wisdom (hikmah) in Islamic finance. The issues problems associated with default
of securing human interests in are ta’widh (compensation) and on loan repayment are controlled
the worldly life and hereafter gharamah (fine or penalty) in the by charging interests or riba on
(Laldin and Furqani, 2013). Islamic financing facilities. customers (BNM 2010, p.129). Since
In theory, there are many the imposition of interests or riba is
differences between Islamic and The issue on penalty payment prohibited by Shariáh, Islamic banks
conventional banks. For instance, in Islamic financing facilities have do not adopt this mechanism to
the interest-bearing contracts in been addressed by numerous address the cases of customers
conventional banks are replaced authors (e.g. Jarrar, 2009; Rosly, default in settling their financial
in Islamic banks by return-bearing 2010). In practice, Islamic banks obligations under any Islamic
contracts, where the profits and usually charge a penalty fee of contract.
losses as well as risks are share one (1) percent on customers’ Moreover, the Quran has
between Islamic banks and their late payment (Echchabi and Abd. declared the prohibition of usury
customers (Khediri et al., 2015). Aziz, 2014). Similarly, El-Din and (riba) in general. Riba’ means

26 UIM Bulletin