The Application of Maslahah in Justifying Ta’widh and Gharamah in Islamic Finance: A Malaysian Perspective

The application of maá¹£laḥah (public interest) plays a vital role in justifying the use of taÊ¿widh (compensation) and gharÄ mah (penalty) within Islamic finance. This study examines how maá¹£laḥah addresses contemporary challenges in Islamic finance in which the primary sources of Islamic law may not provide explicit guidance. Malaysia, through its Shariah Advisory Council (SAC) of Bank Negara Malaysia (BNM), has determined that taÊ¿widh and gharÄ mah may be imposed as late payment charges to safeguard maá¹£laḥah and to uphold justice among the financiers and customers. The problem addressed in this study is the justification and acceptance of taÊ¿wÄ«dh and gharÄ mah in Islamic finance remain debated due to differing interpretations of Shariah principles as calculating precise losses from late payment is often complex and subjective and also there is limited clarity on how maá¹£laḥah is applied to legitimize these concepts within the Malaysian Islamic finance context as some scholars argue these fees help maintain financial stability and justice, while others see potential conflict with Shariah prohibitions, leading to inconsistent application. The main purpose of this study is to explain the concept of maá¹£laḥah, taÊ¿widh, and gharÄ mah, to analyse how the application of taÊ¿wÄ«dh and gharÄ mah is justified through maá¹£laḥah in Islamic finance, and also to recommend a guideline on the application of taÊ¿wÄ«dh and gharÄ mah and its impact on Shariah compliance and regulation in Malaysian Islamic finance. This study adopts a qualitative research design by focusing on library research and doctrinal research, and thus, it is found that the concept of maá¹£laḥah is applied in the application of taÊ¿widh and gharÄ mah in Malaysia. This study agrees that ta’widh and gharamah are introduced by Islamic banks in Malaysia to safeguard the interests of both financiers and the customers, hence the concept of maá¹£laḥah is impliedly applied.