Payment default is contemplated by Islamic finance. All legal documentation in Islamic finance does provide for payment default. Perhaps what is not contemplated is the unintended consequences of a default in relation to the shariah contract. This is an area where there is not much case law, but the recent cases on defaults in Islamic finance products such as sukuk and home financing emphasise the importance of clear legal documentation, accurate appreciation of the Islamic contract and the need for an adequate legal framework to provide certainty on shariah interpretation and efficient recourse. Assumptions that certain Islamic contracts are similar to other common types may result in a mistaken understanding of the Islamic contract.
March 25 2010