Q. As landlords or administrators of Islamic schools, how do we overcome the trouble of tenants or parents making late payments?
A. A penalty fee for the late payment of rent is not allowed, as it would be Riba (interest) (Shaami 5/166).
As an alternative, a landlord or an administrator of an Islamic school may inflate the fees for e.g. by 10% and if anyone pays timeously, they will be offered a discount of 10%. This would suffice as an incentive for people to make timeous payments and would eliminate the issue of Riba (interest).
Allah Ta’ala Knows Best
Mufti Ismaeel Bassa