سوال

Islamic banks also charge late payment penalties, but we see that these penalties do not go into the bank's receivables as income; instead, they are donated to charitable organizations. In contrast, conventional banks take these penalties as income. The point here is that riba was made haram not based on its further use after being charged, but simply on the act of charging money on money given, which in our case is assumed to be a loan. So how is the penalty charged by an Islamic bank considered correct, while the conventional bank's penalty is deemed wrong? To summarize my point, riba is haram based on the act of charging money, not on the basis of the further use of the charged money, whether it is used as income or donated to charity.

اَلجَوَابْ بِاسْمِ مُلْہِمِ الصَّوَابْ

Islamic banks employ the technique of iltizam e tabaru, which differs from the concept of penalties. While both aim to discourage late payments, they function in distinct ways.

Penalties are charged to customers, and banks retain this penalty amount, categorizing it as income. Since this penalty is directly linked to loans, it would be classified as riba, which is haram. Even if banks use this amount for charitable purposes, it does not make the contract permissible.

In contrast, Islamic banks establish a separate agreement of iltizam-e-tabarru with customers, stating that they will pay sadaqah (charity) for late payments. This charity is not linked to the loan, nor does the bank claim ownership of this money or derive any benefit from it. Therefore, since the charity amount is not associated with the loan from the outset, it is not considered riba. The situation is not as you understand, where banks take riba and use it for charitable purposes; instead, it is not riba from the very beginning.

Additionally, this charity amount is not attributed to the name of the Islamic bank. This approach does not allow the bank to earn goodwill from its charitable contributions in order to prevent it from directly benefiting from the funds.

تحرير الكلام في مسائل الإلتزام (ص176):

وأما إذا إلتزم المدعي عليه للمدعي أنه إن لم يوفه حقه في وقت كذا فله عليه كذا وكذا فهذا لا يختلف في بطلانه لأنه صريح الربا وسواء كان الشيء الملتزم به من جنس الدين أو غيره وسواء كان شيئاً معيناً أو منفعة وقد رأيت مستنداً بهذه الصفة وحكم به بعض قضاة المالكية الفضلاء بموجب الإلتزام وما أظن ذلك إلا غفلة ،وأما إذا إلتزم أنه إن لم يوفه حقه في وقت كذا فعليه كذا وكذا لفلان أو صدقة للمساكين فهذا [هو محل الخلاف المعقود له هذا الباب فالمشهور أنه لا يقضى به كما تقدم وقال ‌ابن ‌دينار: يقضى به.