The issue of banking interest in the State of Qatarrepresents one of the most significant legal questions at the intersection ofIslamic Sharia principles and the requirements of the modern banking system.Although Islamic Sharia prohibits usury (riba), the Qatari legislator hasexpressly authorized licensed banks and financial institutions to imposeinterest and returns on loans and credit facilities, in accordance with theapplicable legislative and regulatory framework. This framework is primarily basedon the Law of Qatar Central Bank and the Regulation of Financial Institutionsissued by Law No. (13) of 2012, the Qatar Central Bank Instructions to Banks,as well as the provisions of the Civil Law and the Commercial Law.
This article aims to examine the legal basis for bankinginterest in Qatar, distinguish between its types, and analyze the mostprominent rulings of the Qatar Court of Cassation that have established settledjudicial principles in this regard.
Article 70 of the Law of Qatar Central Bank and theRegulation of Financial Institutions issued by Law No. (13) of 2012 providesthat: "The Bank shall control returns and interest rates and theconditions for granting loans and accepting deposits in the various financialinstitutions. The interest rate or yield determined by the Bank shall apply toperforming or rescheduled credit facilities, unless otherwise agreed betweenthe lending financial institutions and their customers at another price."It follows from this provision that the legislator has granted licensed banksan express authority to impose interest on loans and credit facilities, whetherat the rate determined by Qatar Central Bank or at the rate agreed upon by theparties in the contract.
Furthermore, Qatar Central Bank issued in 2013 the"Instructions to Banks" which demonstrate that banks havediscretionary authority in granting facilities and loans and imposing interestthereon within the prescribed regulatory framework. These Instructions containdetailed guidelines on credit risk management, facility classification,provision determination, and suspension of interest on non-performingfacilities.
It is of critical importance to note that Article 1 of theQatari Civil Law provides that the provisions of Islamic Sharia are onlyreferred to in the absence of any relevant local legislation on a specificmatter. Consequently, the existence of an express legislative provisionauthorizing banking interest takes precedence over the general Shariaprohibition of usury in the context of licensed banking operations.
The Qatar Court of Cassation has established a clear andsettled distinction between two types of interest in banking transactions:
The First Type:Compensatory Interest (Returns) — this is the interest agreed upon betweenthe creditor and the debtor in consideration for the use of a sum of moneyduring a specified period. This interest represents the agreed considerationbetween the parties for the use of funds during the financing period, and it ispermissible and expressly recognized under the QCB Law.
The Second Type: LatePayment Interest (Arrears Interest) — this is the interest that becomes duein the event of the debtor's breach of its obligation to pay the debt on itsdue date, and constitutes compensation to the creditor for the debtor's delayin payment. The Court of Cassation has determined that this interest is duewhether or not the contract includes an agreement thereon, and that it remainsdue even if the contract is terminated.
This distinction was expressly articulated in the Court ofCassation's ruling in Civil Cassation Appeal No. 184 of 2010 (session dated 28December 2010), which stated: "There are two types of interest:compensatory interest in which the creditor shall agree with the debtor toutilize an amount of money during a definite term, and arrears of interestwhich shall be due in the event of default in payment by the debtor in the duedate and it shall be deemed as a compensation to the creditor for the debtor'sdefault in payment." This principle was reaffirmed by the Court ofCassation in Civil Cassation Appeal No. 665 of 2024 (session dated 22 August2024), as well as in Civil Cassation Appeal No. 207 of 2010 (session dated 4January 2011).
The Qatar Court of Cassation has established severalfundamental principles concerning late payment interest in the banking context,which may be summarized as follows:
First Principle:Entitlement to compensation even where the contract does not specify aninterest rate. The Court has determined that even where the loan contractis devoid of a specific interest rate payable by the borrower upon default, thebank is entitled to compensation for the damage sustained as a result of thedelay in payment. This principle was manifested in Civil Cassation Appeal No. 2of 2010 (session dated 23 March 2010), where the Court ruled that the creditorwas entitled to compensation for the damage resulting from the delay in paymentdespite the absence of an agreed rate in the contract.
Second Principle:Presumption of damage in banking transactions. The Court has established apresumption to the effect that "the lender bank usually bears, in order toget the monies necessary to satisfy the borrowers' needs, burdens that could bemore severe than the standard loan; thus, the damage incurred that requires thecreditor's entitlement for the compensation as soon as the borrower is indefault of reimbursing the debt shall be an obligation to the debtor toreimburse it, following the standard practices in banks of which its knowledgeis a common sense and does not need a proof to substantiate the same."This principle means that the bank is relieved of the burden of independentlyproving damage, as the damage resulting from delay in payment is deemed amatter of common knowledge in the banking context that does not requireseparate proof.
Third Principle:Compensation based on civil liability provisions and banking custom. TheCourt has determined that compensation for delay in payment is due"pursuant to the provisions of the civil liability and following thestandard practices in banks." This means that the legal basis forcompensation may be contractual (Article 256 of the Civil Law) or tortious(Article 199 of the Civil Law) depending on the nature of the relationshipbetween the parties.
The body of Court of Cassation rulings in this areademonstrates clear consistency in applying the aforementioned principles. InCivil Cassation Appeal No. 160 of 2009 (session dated 22 December 2009), theCourt of Cassation set aside the appellate judgment which refused compensationto the bank for delay in payment, holding that the bank is entitled tocompensation even where the loan contract does not specify a particularinterest rate upon default.
In Civil Cassation Appeal No. 168 of 2010 (session dated 11January 2011), the Court confirmed the same principle and set aside thechallenged judgment which had dismissed the bank's claim for compensation fordelay in payment.
In Civil Cassation Appeal No. 40 of 2013 (session dated 14May 2013), the Court held that a judgment which merely refused the interestclaim on the basis that the agreement was devoid of a provision thereon,without investigating what the bank may be entitled to as compensation for thedelay in payment of the total amount due, is flawed by error and deficiency.
In Civil Cassation Appeal No. 207 of 2010 (session dated 4January 2011), the Court confirmed that the legislator, with regard to bankingoperations, permitted obtaining interest on loans granted by banks to theircustomers at the rate set by Qatar Central Bank or at the rate agreed uponbetween the parties in loan contracts and credit facilities. The Court furtherset aside the judgment which refused to award interest and expenses withoutexamining the banking facility agreements and the terms agreed therein.
Finally, in Civil Cassation Appeal No. 665 of 2024 (sessiondated 22 August 2024), the most recent ruling in this regard, the Courtreaffirmed the distinction between compensatory interest and late paymentinterest, and held that the challenged judgment erred in considering thatbanking interest is merely compensation for delay in payment notwithstandingthat the parties had agreed on its rate in the contract.
It is evident from the foregoing review of the legislativeframework and judicial precedent that the Qatari legal system providescomprehensive protection for banks' rights to recover interest of both types.Compensatory interest finds its basis in the contractual agreement and the QCBLaw, while late payment interest is grounded in the provisions of civilliability and established banking custom.
Most significantly, the Court of Cassation has established asettled principle that late payment interest is due even in the absence of anexpress contractual provision specifying it, and that the damage resulting fromdelay in payment is presumed in the banking context and does not requireindependent proof. This principle strengthens banks' legal position andprovides them with a judicial guarantee for recovering appropriate compensationfor delay in payment.
In conclusion, Qatari law strikes a careful balance betweenrespecting the general principles of Islamic Sharia on the one hand, andmeeting the requirements of the modern banking sector on the other, through aclear legislative and regulatory framework that authorizes and regulatesbanking interest, supported by settled judicial precedent that establishes thedetailed rules for its application.