A Step Toward Clarity: Why the Dubai Ruling on Late Payment Charges Matters

This week’s news out of Dubai could mark a great development for Islamic finance and for the UAE as a whole. The Court of Cassation has issued a binding ruling prohibiting Islamic banks and Takaful companies from charging late payment interest or penalties, even when delays are intentional. For someone like me who’s long believed in the need for clarity and consistency in Sharia-compliant finance, this is a big moment.

Of course, we’ll need to read the full ruling carefully. But at first glance, this appears to be a decisive step toward resolving one of the most contentious and misunderstood areas in Islamic finance. Watch this space.

According to reports from Emarat Al Youm, the court ruled that Islamic financial institutions, whether operating fully or partially under Sharia, cannot impose charges on delayed payments. It doesn’t matter what the charge is called: interest, compensation, late fees, or anything else. If the underlying transaction is Sharia-compliant, then punitive charges for delay are not allowed. The court went further to state that this is a matter of public order, meaning it must be applied automatically by judges, even if previous rulings have said otherwise.

The decision comes after a formal request by the head of the Court of Cassation to resolve conflicting decisions from previous cases. Now, the matter has been referred to the General Assembly of the Court of Cassation for a unified interpretation under Article 20 of Law No. 13 of 2016 - the law that governs Dubai’s judiciary.

This kind of legal clarity is exactly what the Islamic finance industry needs. When financial institutions and regulators operate in a grey zone, uncertainty reigns  and that doesn’t serve anyone well, whether you’re a bank, a customer, or an investor. I’ve always believed that Sharia-compliant finance can be both principled and practical, but that depends on clear, consistent application of the rules. This ruling is a step in that direction.

There will no doubt be implications for contracts, risk assessments, and even customer behaviour, but those are details we will explore once the full judgment is released. For now, I see this as an encouraging signal: the UAE is serious about reinforcing the foundational values of Islamic finance, and willing to make tough legal calls to do so.