Penalty for Charity according to Islamic Law

Abstract

Penalty clause is meant as liquidated damages to ensure performance under a contract, should there be a breach of the contract. Each particular legal system has a different way of handling penalty. Common Law calls for liquidated damages and frowns upon penalty as applied in Civil Law. However, in a Civil Law country the unreasonable penalty can be reduced by the Court. Whereas in an Islamic country penalty for breach of a contract must be garnered for charity only. The author proposes revision of the present Islamic Banking Act to yield details for proper practice.