SS 4 – Settlement of Debt by Set-Off

The aim of this standard is to outline the rules governing the use of set- off in settling debts, the Shari’ah requirements and conditions applicable to set-off, what is permissible or not permissible in this procedure and the most significant practices of Islamic financial Institutions (Institution/ Institutions) in this regard.

The word (Institution/Institutions) is used here to refer, in short, to Islamic financial institutions including Islamic Banks.

Scope of the Standard

This standard covers the settlement of debt by way of set-off. The standard shall not apply to discharge of liability by way of transfer, waiving of obli- gation, composition, acquisition of a right payable or bilateral cancellation of a contract, as they are covered by their respective Standards. 2. Definition of Set-Off and Its Various Forms A set-off is to extinguish a debt receivable by a debt payable. It is divided into two main forms: mandatory set-off and contractual set-off.