Ta'widh and Gharamah Explained (2026): Late Payment Charges on Islamic Financing

Ta'widh (compensation) is the charge an Islamic bank in Malaysia may impose when you pay late, and it is the only part of a late payment charge the bank may keep, because it covers the bank's actual loss. Bank Negara Malaysia's Shariah Advisory Council resolved on 28 January 2010 that ta'widh may be imposed once the agreed payment date has passed, at a rate BNM sets, which banks print as 1% a year on the overdue amount, never compounded. Gharamah (penalty) is the deterrent portion: the SAC's 20 May 2010 resolution allows it but bars the bank from booking it as income, so it goes to charity. On a missed RM1,500 instalment paid 30 days late, ta'widh is RM1.23. Our halal banking guide covers the contracts underneath.

What ta'widh and gharamah are, in one paragraph each

Ta'widh is compensation for actual loss. The Securities Commission's SAC, in its resolution printed in the second edition of its rulings, permitted ta'widh on late payment of Islamic financing at its 12th meeting on 14 July 1999 and extended it at its 30th meeting on 8 November 2000 to arrears and to failure to pay after the due date on any financing based on exchange contracts. The rate on late profit is one per cent a year of the arrears and cannot be compounded; the rate on unpaid principal after default follows the Islamic interbank money market rate and also cannot be compounded; and the total ta'widh can never exceed the outstanding financing balance. BNM's SAC adopted the same logic for banks on 28 January 2010, adding that ta'widh applies to exchange contracts and to qard, and only after the agreed repayment period lapses.

Gharamah is a fine. BNM's SAC, at its 101st meeting on 20 May 2010, allowed Islamic banks to impose a late payment charge made up of both gharamah and ta'widh as a deterrent against default. The condition is strict: gharamah is not allowed to be recognised as income and must be channelled to specified charitable bodies, while ta'widh may be recognised as income because it compensates actual loss. The same resolution says the charge must consider the customer's financial capability and that BNM sets the maximum rates for both. The reason the distinction matters is riba: a charge the bank keeps that exceeds its real loss would be an increase on a debt, which is exactly what Islamic finance exists to avoid.

The regulatory frame: who decided what and when

The 2010 resolutions said their effective dates would be set by BNM guidelines, and the ibra guideline we fetched names the resulting document: the Guidelines on Late Payment Charges for Islamic Financial Institutions, issued by BNM's Islamic Banking and Takaful Department together with its Consumer and Market Conduct Department. We did not retrieve that guideline itself during this task, so the caps below are taken from the banks' product disclosure sheets, which must follow it. For the wider structure of SAC rulings and bank Shariah committees, see our BNM Shariah governance explainer.

How the charge is calculated during the tenure and after maturity

Three stages appear in every disclosure sheet. During the tenure, ta'widh runs at up to 1% a year on the overdue monthly instalment or monthly profit, based on actual cost, and only on the amount that is late, not on the whole balance. If the facility is terminated before maturity, for instance because the bank recalls it or takes you to court, ta'widh runs at up to 1% a year on the outstanding Bank's Sale Price less ibra, which is the real debt after the unearned profit is rebated. After the tenure expires with money still owed, the rate steps up to no more than BNM's prevailing daily overnight Islamic Interbank Money Market rate on that outstanding balance. Across all three stages the accumulated ta'widh cannot exceed 100% of the outstanding purchase price, and none of it compounds.

The practical consequence is that Islamic arrears grow slowly. A conventional loan in default typically continues to accrue interest on the full balance at the contract rate plus a default margin, and the lender keeps all of it. An Islamic facility in default accrues ta'widh at 1% a year on the late amounts, then at the overnight Islamic interbank rate on the net debt only after maturity or termination, and anything above actual loss is gharamah that leaves the bank. We cannot print a specific conventional default rate here because no lender's rate was fetched for this piece; the structural point is that the Islamic charge is capped by regulation and the conventional one by contract.

Worked example: one missed RM1,500 instalment

Assume a home financing instalment of RM1,500 due on 1 March, paid on 31 March, with the facility still running. Ta'widh is 1% a year on the overdue amount for the days it was overdue: RM1,500 times 1% times 30 over 365, which is RM1.23. If the instalment stayed unpaid for a full year with no other consequence, the charge would reach RM15.00 and stop compounding there. If three instalments of RM1,500 fell into arrears and stayed unpaid for 90 days on average, the ta'widh would be RM4,500 times 1% times 90 over 365, or RM11.10. These are the numbers the bank can keep.

• Write down the overdue amount, which is the missed instalment or profit, not your whole balance.
• Multiply by 1% and by the number of days late divided by 365, and that is the maximum ta'widh during the tenure.
• Check the letter of offer for any gharamah component; if one is charged, it goes to charity and cannot appear as bank income.
• If the facility has been terminated or has matured, recompute on the outstanding Sale Price less ibra at the rate the PDS states for that stage.
• Confirm the running total never exceeds 100% of the outstanding purchase price, which is the regulatory ceiling.

The arithmetic makes a second point. Ta'widh is not where the cost of arrears lies. The expensive consequences are the revised effective profit rate a bank may apply, the credit record in CCRIS, legal costs if the bank sues, and foreclosure. CIMB's disclosure sheet lists all four, and the first three arrive long before the ta'widh total is noticeable.

How ta'widh appears in a product disclosure sheet: CIMB's page as the example

CIMB Islamic's property financing fee page, fetched on 19 September 2026, is a good specimen because it prints the whole clause. Under 'Late Payment' it says the customer undertakes to pay late payment charges as compensation (ta'widh) at 1% a year, or any other rate approved by BNM, on the monthly profit or instalment for overdue payments during the availability period or tenure; at 1% a year on the outstanding Bank's Sale Price less ibra from termination if the facility is terminated early; and at no more than BNM's prevailing daily overnight IIMM rate on the outstanding balance after the tenure expires. It adds that accumulated ta'widh will not exceed 100% of the outstanding Bank's Purchase Price and that the bank will give prior written notice of any rate change. The Flexi Home Financing-i PDS, version December 2025, repeats the same three tiers under 'What happens if you fail to pay', prefaced with 'based on actual cost'. Our CIMB Flexi Home Financing-i review covers the rest of that product.

Credit cards use a flat version. CIMB's Islamic card fee page defines ta'widh as 1% of the unpaid balance from retail transactions and cash advances, minimum RM10 and maximum RM100, imposed if the minimum payment is not paid by the due date. Maybank's myimpact Ikhwan page describes the standard Maybank Islamic card charge as 'the usual 1% or RM10 minimum' while waiving it on that card. Hong Leong Islamic, which our Hong Leong Islamic guide rates as the clearest explainer of contracts, keeps its late payment clause inside the retail financing fee section rather than on a product page; Bank Islam's financing fee page likewise sends you to the PDS. If a bank's page does not print the clause, ask for the PDS before you sign, because BNM requires the charge to be disclosed there.

How ta'widh interacts with ibra, restructuring and AKPK

BNM's ibra guideline, updated 31 January 2013, is explicit that late payment charges are calculated separately from the ibra calculation and reflected in the settlement amount: settlement equals the outstanding selling price, minus ibra, plus late payment charges. Its worked foreclosure example carries RM1,025.42 of late payment charges on top of a RM267,766.53 outstanding selling price against RM98,167.98 of deferred profit rebated. Arrears therefore never reduce your rebate; they are added after it. The mechanics of the rebate itself are covered in our ceiling versus effective rate guide.

Restructuring and rescheduling change the contract, and under Tawarruq a new commodity trade is normally executed for the revised amount, with the old ta'widh either settled or carried into the new facility as a separate line. If you cannot agree terms with the bank, Agensi Kaunseling dan Pengurusan Kredit (AKPK) runs the Debt Management Programme: applications go through the AKPK DM Portal, the application is processed within seven working days, payments are made to AKPK on or before the 5th of each month through FPX on the portal or through Maybank channels, and the programme terminates automatically if you miss three consecutive monthly instalments. AKPK's page does not state a fee for the programme and does not describe how banks treat accrued ta'widh inside a DMP; ask the counsellor to confirm both in writing.

What a borrower in arrears should do in the first 30 days

The first month decides whether this is an RM1.23 problem or a foreclosure problem. CIMB's disclosure sheet, which is typical, says the bank may deduct money from your savings account to set off arrears after seven calendar days' notice, may revise the effective profit rate, may terminate the facility if your creditworthiness changes, and may foreclose or take legal action; it also tells you to call its collections line to discuss alternative payment options. Every one of those is cheaper to pre-empt than to reverse.

• Day 1 to 3: pay whatever part of the instalment you can, because ta'widh accrues only on the unpaid portion and partial payment shows capability.
• Day 3 to 7: call the bank's collections or hardship line named in the PDS, ask for the set-off notice to be held, and request the current ta'widh and gharamah figures in writing.
• Day 7 to 14: if the shortfall will last more than one cycle, ask for a rescheduling or a temporary step-down and get the revised contract terms, including any new ceiling rate, in writing.
• Day 14 to 21: if the bank refuses or the arrears cover more than one facility, apply to AKPK's Debt Management Programme through the DM Portal; processing takes up to seven working days.
• Day 21 to 30: check your CCRIS record through BNM's eCCRIS, confirm what the bank has reported, and decide whether early settlement from savings beats carrying the arrears, remembering that ibra applies to unearned profit on settlement.

For personal financing, where instalments are smaller and tenures shorter, the same sequence applies; our personal financing comparison and the personal financing hub show which banks print their ta'widh clause on the product page. For home financing, the home financing hub lists the disclosure each bank gives.

Our view

If you are choosing between Islamic and conventional financing and worry about what happens when you miss a payment, the Islamic regime is materially kinder: compensation is capped at 1% a year on the late amount, cannot compound, cannot exceed the outstanding balance, and any penalty beyond actual loss goes to charity rather than to the bank. If you are already in arrears, stop worrying about ta'widh and start worrying about the set-off notice, the revised profit rate and CCRIS; act in the first week. If you are reading a product disclosure sheet, look for the three-stage clause with 'based on actual cost' and the 100% cap; CIMB prints it, and any bank that will not should be asked why. Facts checked against bnm.gov.my, sc.com.my, cimb.com.my, maybank2u.com.my, akpk.org.my on 19 September 2026.

Frequently asked questions

What is ta'widh in Islamic banking?

Ta'widh is compensation an Islamic bank may charge when a customer pays late, covering the bank's actual loss. BNM's Shariah Advisory Council resolved on 28 January 2010 that it may be imposed after the agreed payment date on financing based on exchange contracts or qard, that the bank may recognise it as income, and that BNM sets the rate. Banks print it as 1% a year on the overdue amount, never compounded.

What is gharamah and where does the money go?

Gharamah is a penalty or fine imposed as a deterrent against default. BNM's SAC allowed it on 20 May 2010 as part of a late payment charge alongside ta'widh, on condition that it is not recognised as the bank's income and is channelled to specified charitable bodies. The bank keeps only the ta'widh portion that compensates its actual loss.

How much is the late payment charge on Islamic financing in Malaysia?

During the tenure, up to 1% a year on the overdue instalment or profit, based on actual cost. If the facility is terminated early, up to 1% a year on the outstanding Sale Price less ibra. After maturity, up to BNM's overnight Islamic interbank money market rate on the outstanding balance. Total ta'widh is capped at 100% of the outstanding purchase price. On a RM1,500 instalment paid 30 days late, that is RM1.23.

Is ta'widh riba?

No, according to both the SC's and BNM's Shariah Advisory Councils, because it compensates the financier's actual loss from delay rather than rewarding the passage of time on a debt. The SC resolution grounds it in the hadith that a rich person's delay in paying a debt is wrongdoing and the ruling of Qadhi Syuraih that a voluntarily accepted condition is binding. The safeguards are the 1% cap, no compounding, and the ceiling at the outstanding balance.

Does ta'widh reduce my ibra rebate on early settlement?

No. BNM's ibra guideline, updated 31 January 2013, requires late payment charges to be calculated separately from ibra and added to the settlement amount: outstanding selling price minus ibra plus late payment charges. You still receive the full rebate of unearned profit; any accrued ta'widh is a separate line that must be paid on top.

Can AKPK help with an Islamic financing in arrears?

Yes. AKPK's Debt Management Programme is applied for through its DM Portal, processed within seven working days, and paid monthly to AKPK on or before the 5th through FPX or Maybank channels; it ends automatically after three consecutive missed instalments. AKPK's page does not state a programme fee or how banks treat accrued ta'widh inside a DMP, so ask the counsellor to confirm both in writing.