KembaraXtra – Islamic Banking – Cheque Payment Systems and Insufficient Client Funds

KembaraXtra – Islamic Banking – Cheque Payment Systems and Insufficient Client Funds

In a Shari’ah-compliant cheque payment system, a special issue arises when a customer (the payer) does not have enough money in their account to cover a cheque they have issued.

What happens when funds are insufficient?

When an Islamic bank receives a cheque for payment and finds that the payer’s account has insufficient funds, the bank has two Shari’ah-compliant options:

Option 1: Dishonour the cheque

The bank may reject or dishonour the cheque.
The payment is not made to the payee.
This is similar to conventional banking practice and is fully acceptable under Shari’ah.

Option 2: Honour the cheque using a short-term facility

Alternatively, the Islamic bank may decide to honour the cheque in order to help the customer and maintain payment system stability.

The bank extends a short-term interest-free facility to the payer.
This facility is usually structured as a Qard Hasan (benevolent loan).
The bank temporarily pays the cheque on behalf of the customer.
The customer is required to repay only the principal amount.

Fees and charges (important Shari’ah rule)

The type of contract used determines what the bank is allowed to charge:

Under a Qard Hasan contract:
- ❌ No interest or profit can be charged.
- ❌ No penalty for the use of money.
- ✅ The bank may charge only an administration fee.
- This fee must reflect actual costs incurred (e.g. processing and operational expenses).

👉 The fee cannot be linked to time, amount, or profit, as this would resemble interest (Riba).

Why this approach is Shari’ah-compliant

This arrangement:

avoids interest (Riba),
prevents unjust enrichment,
supports smooth operation of the payment system,
balances customer support with Shari’ah ethics.

Very simple summary

If a cheque is presented with insufficient funds, an Islamic bank may either dishonour it or honour it by giving the customer a short-term, interest-free loan (Qard Hasan), charging only actual administrative costs.

In a Shari’ah-compliant cheque payment system, when a customer has insufficient funds, the bank may dishonour the cheque or honour it by providing a short-term Qard Hasan facility, under which no interest is charged and only actual administrative expenses may be recovered.

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