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Late fee in Islamic Finance

Fatwaa ID: 338

Question:
Assalamualaikum Wa Rahmatullahi Wa Barakatahu,

In Islamic Finance, if I were to get into a monthly finance plan and I get charged a late fee does that count as riba?

And a question related to riba:

If one buys a house and was involved in riba and this individual lets me know that he bought a house, would it be haram for me to congratulate him?

Answer:
In the Name of Allaah, the Most Gracious, the Most Merciful.
As-salaamu ‘alaykum wa-rahmatullaahi wa-barakaatuh.

  1. Late fees are not permissible in Islam. Late fees in the Islamic modes of financing are also not permissible and may be regarded to be ribaa. However, to mitigate the delay, defaulting or abuse of a debtor/partner, the financier may have the debtor/partner unilaterally agree to a tabarru’ clause. This means that the debtor/partner will pay a voluntary “penalty” to the financier for defaulting but this amount will be given away in charity by the financier on behalf of the debtor/partner. The financier may not keep this under any circumstances.
  2. If you are aware that someone purchased a house with a haraam mode of financing, then it is haraam to congratulate him on this. You are congratulating him on engaging in war with Allaah Ta’aala and His Rasool (S). Likewise, if he invites you for a house warming or inauguration party, you should not join.

And Allaah Ta’aala knows best.
Mufti Muajul I. Chowdhury
Darul Iftaa New York
https://askthemufti.us/

01/17/1444 AH – 01/10/2023 CE | AMG1-2302

وصل اللهم وسلم وبارك على سيدنا محمد وعلى ءاله وصحبه أجمعين

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