Method of Solution for Breach of Contract (Default Payment) in Islam: A Literature Review

Problem of breach of contract in debt financing is seen increasing day by day in line with rapid development of the Islamic financial system in Malaysia. The bank actually has taken the appropriate measures to overcome this problem. However, question arise related to the basis of valuation of a breach of contract and are there other methods of compensation to help Islamic financial institutions deal with this breach. Thus, this paper reviews previous studies as to issues related to the breach of contract. Analysis of the literature is conducted to evaluate the concept of breach of contract and to identify its solutions according to the Islamic point of view. This is a qualitative study with approach of library research. Result of literature review found that problem of breach of contract often occurs in the case of violations of right and condition. Part of the problem of breach of contract may also be overcome through the use of several methods and contractual supports. Therefore, a study to form a method and mechanism of solution of breach of contract based on Islamic principles should be developed. This is in order to the practice of financial system and Islamic banking will be more transparent and harmonized.