Dubai: Dubai’s Court of Cassation has recently issued a significant mandatory ruling that all Islamic banks and Takaful companies must stop charging interest or fees for late payments. Based on the reports from the popular Arabic newspaper, Emarat Al Youm, the binding decision clarified that even if debtors purposely delay fulfilling their obligations, Islamic banks and Takaful firms can’t charge late fees. Takaful companies and Islamic banks in the UAE must maintain transparency in their operations and completely align with all Sharia compliance procedures.
This historic ruling also signals a major shift for new Islamic finance ventures, many of which are emerging as some of the best startup story in the ethical fintech space. These startups, which prioritize compliance with Islamic values, can now operate with more clarity and legal assurance, potentially reshaping the future of Sharia-based financial services.
In its binding decision, the court stated that Islamic banks, trust companies, Takaful firms, and other financial institutions that adhere fully or partially to Islamic Sharia Law are not allowed to charge fees or interest on late payments. Any debt or financial obligation that follows Sharia compliance cannot be charged with late payment fees, even if the charges are classified as compensation or any other type. The late payment fees ban is also applicable to the late payments that are intentionally made by the debtors. This ruling is a mandatory order and should be implemented solely by the court, even if previous rulings contradict it.
No More Late Fee Charges: Dubai Court Ruling for Islamic Finance Sector
The ruling decision regarding the late payment fees ban by Islamic banks and Takaful firms was announced as a result of a formal request submitted by the head of the Court of Cassation. The request was submitted with the intent to resolve conflicts and disagreements in the court’s previous decisions about whether Islamic banks and other financial institutions can legally charge fees on late payments as compensation. This was then directed to the General Assembly of the Court of Cassation for a common interpretation, as per article 20 of Dubai’s Judicial Authority Law No. 13 of 2016.
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