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Islamic Contract – Bay’ al-Istisnā‘: Late Delivery Charge Clause in Istisnā‘ Contracts
Q1: Why are the terms
gharamah
and
ta‘wīd
not commonly used in istisnā‘ late delivery clauses?
Answer
The terms:
debt-based contracts such as murābahah financing.
This is because murābahah primarily creates:
Why Istisnā‘ Is Different
In istisnā‘:
Therefore, the late delivery clause in istisnā‘ is usually treated as:
a contractual performance penalty clause (shart jazā’ī)
rather than:
Q2: What is the AAOIFI position regarding late delivery charges?
Answer
According to AAOIFI Shariah Standard (Para 6/6):
Q3: What is the BNM position regarding late delivery charges?
Answer
According to the BNM Policy Document on Istisnā‘ (Para 27.4):
against the seller for late delivery.
Unlike murābahah:
Q4: What is
shart jazā’ī
?
Answer
Shart jazā’ī means:
a contractual penalty clause agreed upon in advance for breach or delay in performance obligations.
In istisnā‘:
Comparison Between Murābahah and Istisnā‘ Late Charges
Murābahah
Nature of Issue
Late payment of debt.
Terms Used
Customer delays repayment obligation.
Istisnā‘
Nature of Issue
Late delivery or late construction.
Term Used
Manufacturer delays contractual performance.
Case Study 1: Murābahah Late Payment (Ta‘wīd and Gharamah)
An Islamic bank provides murābahah vehicle financing.
Financing Details
This concerns:
Case Study 2: Istisnā‘ Late Delivery (
Shart Jazā’ī
)
A contractor agrees to construct a warehouse.
Contract Details
“Contractor shall pay RM15,000 per week for unjustified delay.”
The contractor delays completion by:
Penalty Calculation
15,000 times 6 = 90,000
Result
This is:
Case Study 3: Force Majeure Situation
A construction company builds a factory under istisnā‘.
Contract Details
Delay caused by:
✅ No shart jazā’ī imposed.
Important Principle
Murābahah
Late charges relate to:
debt repayment obligations.
Thus:
Istisnā‘
Late charges relate to:
failure to complete or deliver manufactured asset on time.
Thus:
Q1: Why are the terms
gharamah
and
ta‘wīd
not commonly used in istisnā‘ late delivery clauses?
Answer
The terms:
- gharamah (penalty); and
- ta‘wīd (compensation)
debt-based contracts such as murābahah financing.
This is because murābahah primarily creates:
- a debt obligation owed by the customer to the bank.
- delayed settlement of debt.
- ta‘wīd compensates actual losses from delayed payment;
- gharamah acts as a deterrent penalty against intentional default.
Why Istisnā‘ Is Different
In istisnā‘:
- the issue is not late payment of debt;
- the issue is:
Therefore, the late delivery clause in istisnā‘ is usually treated as:
a contractual performance penalty clause (shart jazā’ī)
rather than:
- debt compensation (ta‘wīd); or
- debt penalty (gharamah).
- the purchaser suffers loss due to construction or manufacturing delay,
- not due to unpaid debt.
Q2: What is the AAOIFI position regarding late delivery charges?
Answer
According to AAOIFI Shariah Standard (Para 6/6):
- a fair penalty clause may be included in the istisnā‘ contract to compensate the purchaser if the manufacturer delays delivery.
- force majeure situations are excluded.
- floods;
- earthquakes;
- war;
- government restrictions.
- fair;
- proportionate; and
- linked to actual contractual delay.
Q3: What is the BNM position regarding late delivery charges?
Answer
According to the BNM Policy Document on Istisnā‘ (Para 27.4):
- the contracting parties may include:
against the seller for late delivery.
Unlike murābahah:
- the penalty amount may be recognised as income by the purchaser.
- the purchaser may suffer genuine commercial losses from project delay.
Q4: What is
shart jazā’ī
?
Answer
Shart jazā’ī means:
a contractual penalty clause agreed upon in advance for breach or delay in performance obligations.
In istisnā‘:
- it applies when the seller/manufacturer:
- fails to complete;
- delays construction;
- or delivers late.
Comparison Between Murābahah and Istisnā‘ Late Charges
Murābahah
Nature of Issue
Late payment of debt.
Terms Used
- ta‘wīd
- gharamah
Customer delays repayment obligation.
Istisnā‘
Nature of Issue
Late delivery or late construction.
Term Used
- shart jazā’ī
Manufacturer delays contractual performance.
Case Study 1: Murābahah Late Payment (Ta‘wīd and Gharamah)
An Islamic bank provides murābahah vehicle financing.
Financing Details
- Selling price: RM120,000
- Monthly instalment: RM2,000
- 5 months.
This concerns:
- delayed debt repayment.
- ta‘wīd and gharamah may apply.
Case Study 2: Istisnā‘ Late Delivery (
Shart Jazā’ī
)
A contractor agrees to construct a warehouse.
Contract Details
- Construction price: RM10,000,000
- Completion date: 1 January 2029
“Contractor shall pay RM15,000 per week for unjustified delay.”
The contractor delays completion by:
- 6 weeks.
Penalty Calculation
15,000 times 6 = 90,000
Result
- Contractor pays RM90,000 to purchaser.
This is:
- not ta‘wīd for debt delay;
- not gharamah for late payment.
- it is a contractual performance penalty (shart jazā’ī)
for delayed completion of construction.
Case Study 3: Force Majeure Situation
A construction company builds a factory under istisnā‘.
Contract Details
- Factory value: RM30,000,000
- severe earthquake damages site.
- 4 months.
Delay caused by:
- force majeure beyond contractor’s control.
- penalty clause should not apply.
✅ No shart jazā’ī imposed.
Important Principle
Murābahah
Late charges relate to:
debt repayment obligations.
Thus:
- ta‘wīd and gharamah apply.
Istisnā‘
Late charges relate to:
failure to complete or deliver manufactured asset on time.
Thus:
- shart jazā’ī applies instead.
- the legal nature of the obligation is different.
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