CLASSIFICATION OF DEFAULTERS IN THE PAYMENT OF DEBT IN ISLAMIC BANKING PRACTICES

Abstract

This paper discusses the issue of treatment of debt defaulters from
Sharʑah perspective and its current practices in Islamic banking and
finance. In doing so, the paper first explains the concept of debt and
its payment obligation from Islamic point of view. The paper also
critically reviews the current practice of treating defaulters by
Islamic banks. A thorough analysis on various opinions and views of
the classical and contemporary jurists in determining the types of
defaulters is also provided. The paper concludes that besides the
categorization of defaulters to solvent and insolvent in the modern
Islamic banking practice, a new category namely, muta‘atthir (a
solvent debtor who is facing temporary shortage of liquidity) should
also be considered. These debtors are not insolvent based on the
ratio of their total assets to debts. However, they are in situation of
default due to temporary shortage of liquidity that they are facing.
Hence, this new category might have its own ruling from Sharī‘ah
point of view in terms of debt settlement and restructuring where it
does not carry the ruling of insolvent debtor.