Jurisprudential and Legal Analysis of Non-Performance Penalty in Banking Contracts

One of the problems of banking system is delayed repayments of loans by the customers. Stipulation of a non-performance penalty/performance pledge or delayed payment penalty in banking contracts is one of the ways to solve this problem. Because of differences about legitimacy of this approach amongst Islamic jurists, it is necessary that jurisprudential views on this issue be analyzed along with proper explanation of nature of the penalty clause/performance pledge.Using an analytical and descriptive method and based on juridical sources this article intends to prove the following hypothesis: Nonperformance penalty/performance pledge or delayed payment penalty is punitive in nature and is different from late payment damages, which has a compensatory nature. Regardless of similarity with usury, this approach has other juridical and legal problems which can make using it as a solution for problem of delayed repayment, objectionable. Proving such a hypothesis, in addition to providing the correct definition of nonperformance penalty, is also effective in identifying and explaining its religious rule.