Technically NPLs should not exist in the Islamic banking system. NPLs are loans which are not repaid. There are two reasons for non repayment of loans; the first is the borrower’s inability to pay due to economic circumstances and the other is a blatant refusal to pay by the borrower despite having the ability to pay.
In the first instance, the banks should play the role of a caring organisation and restructure the repayment schedule to ensure repayment can be resumed and the borrower is not made worse off. The debt won’t turn bad because it has been restructured.
In the second case, the borrower should have his hands chopped off for stealing. Borrowing money and refusing to repay when the borrower has the means to repay tantamount to stealing. The penalty for theft under Shariah is cutting off the hands. So, instead of charging the defaulter (or robber) penalties (ta'widh) and compounded interest, the Islamic Bank should just charge in him court for theft.
In the first instance, the banks should play the role of a caring organisation and restructure the repayment schedule to ensure repayment can be resumed and the borrower is not made worse off. The debt won’t turn bad because it has been restructured.
In the second case, the borrower should have his hands chopped off for stealing. Borrowing money and refusing to repay when the borrower has the means to repay tantamount to stealing. The penalty for theft under Shariah is cutting off the hands. So, instead of charging the defaulter (or robber) penalties (ta'widh) and compounded interest, the Islamic Bank should just charge in him court for theft.
Now, if that kind of ruling is put in place, would there be any NPLs in Islamic banks?
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