Dubai Court bans late payment charges by Islamic banks and Takaful firms

Matter referred to the General Assembly of the Court of Cassation for a unified ruling

Last updated: July 17, 2025 | 11:44

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Dubai: The Court of Cassation in Dubai has issued a binding ruling that prohibits Islamic banks and Takaful companies from charging interest or fees for delayed payments — even when debtors deliberately postpone fulfilling their obligations, according to Emarat Al Youm.

In its decision, the court declared: “Islamic financial institutions and Takaful companies that operate fully or partially in accordance with Islamic Sharia law are not permitted to impose late interest fees — whether labeled as compensation or by any other name — on any debt or financial obligation arising from Sharia-compliant transactions or commercial contracts. This applies in cases of delayed payments, regardless of the debtor’s intent. This principle is a matter of public order and must be applied by the court independently, even if prior rulings suggest otherwise.”

The ruling came in response to a formal request by the head of the Court of Cassation, aimed at resolving contradictions in earlier court decisions about whether Islamic financial institutions could lawfully charge late payment penalties as compensation.

The matter was referred to the General Assembly of the Court of Cassation for a unified interpretation, in accordance with Article 20 of Law No. 13 of 2016, which governs the judicial authority in the Emirate of Dubai.

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