Proposing a Maqasid-based method of calculating the cost of default for Islamic financing

Saladin, Witrofoledy and Che Mohd Salleh, Marhanum and Khaliq, Ahmad (2026) Proposing a Maqasid-based method of calculating the cost of default for Islamic financing. International Journal of Islamic Economics and Finance (IJIEF), 9 (2). pp. 282-299. E-ISSN 2622-4372

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Abstract

The treatment of default in Islamic financing requires a fair calculation mechanism that protects both financial institutions and customers while remaining consistent with the objectives of Shariah. This study investigates how Islamic banks address financing defaults and proposes a Maqasid-based method for calculating default costs in Islamic financing. A qualitative research design was employed, with primary data collected through structured and semi-structured interviews with experienced bank officers and legal practitioners. The data were analyzed thematically to identify prevailing practices and perspectives on default-cost calculation. The findings show that Islamic banks primarily determine default costs based on the outstanding selling price of financing, which may result in relatively high default costs, whereas conventional banks generally rely on the outstanding loan balance at the time of default. Most respondents agree that, to better reflect the objectives of Maqasid al-Shariah, default costs should instead be calculated based on the outstanding financing balance, with ibra’ considered upon termination of the financing facility. This approach provides a more equitable treatment of customers while maintaining the legitimate interests of Islamic financial institutions. The study contributes to Islamic banking practice by proposing a Maqasid-oriented framework that incorporates fairness and the protection of wealth (hifz al-mal) into the calculation of financing default costs. The findings also provide practical insights for regulators and Islamic banking practitioners in developing more equitable and Shariah-consistent default management policies.

Item Type:	Article (Journal)
Uncontrolled Keywords:	Cost of Default, Maqasid, Islamic Financing
Subjects:	BPK Islamic law. Shari'ah. Fiqh H Social Sciences > H Social Sciences (General) H Social Sciences > HG Finance > HG3368 Islamic Banking and Finance
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Kulliyyah of Economics and Management Sciences > Department of Finance
Depositing User:	Dr. Marhanum Che Mohd Salleh
Date Deposited:	15 Sep 2026 15:26
Last Update:	15 Sep 2026 15:26
Queue Number:	2026-09-Q5096
URI:	http://irep.iium.edu.my/id/eprint/131251
Indexed In:	Google Scholar

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