Is a Murabaha contract, which stipulates a late payment penalty in the event of intentional delay by the buyer, and this penalty is disbursed to charitable causes and alms, permissible in Islamic law?

The bank is not permitted to stipulate interest or a penalty for late payment of installments, whether the delay is excusable or not, because this is considered clear and forbidden usury (riba). The Islamic Fiqh Academy has affirmed the prohibition of this, emphasizing that it is not permissible to oblige a defaulting debtor to pay any increase on the debt, or to stipulate compensation in case of delay in performance, even if the debtor is procrastinating.

It is permissible, according to Sharia, for the seller on credit to stipulate that installments become due before their original dates if the debtor delays in paying some of them, provided that the debtor agreed to this condition at the time of contracting.

Islamic banks must cease this forbidden practice. And the client dealing with the bank should refuse this usurious condition. The bank may take other guarantees to secure its right, such as requiring the opening of an account with them or a guarantor who assumes liability.