Credit cards or 'plastic money' are a substitute for cash payments. As it says it is a credit given to the customers by the issuer/bank in order to pay for goods or services. It usually involves an unsecured debt up to a predetermined limit payable over a deferred period through instalments. Moreover cash advance can be obtained with credit cards.

What´s the use of credit cards? There are basically 2 reasons. First it is safer to carry your credit card instead of pockets full of cash with you. Secondly it gives you the possibility to buy something even though you do not have the money at the time. That's one of the reasons why conservative scholars are against credit cards, as they see it as an invention by western culture of spending time and enjoying yourself with money not possessed.

The main criticism however is that by its nature credit cards are interest bearing (riba), hence forbidden (haram).

Some issuers solve that problem by issuing prepaid or covered cards that are per definitionem interest-free. Before using the the card the cardholders must transfer money to the card. In this case it is like a debit card and as usually big companies like MasterCard or Visa are involved cards can be presented in many shops worldwide as well as for internet payment. The difference with this card is that the bank does not earn any interest on the balance either.

Dr Monzer Kahf explains that credit cards are permitted under two conditions: '1) that you intend to pay within the grace period so that no interest is generated, this include the prohibition of cash withdrawals in most cards because cash withdrawals generate interest even during the grace period, i.e. from the day of withdrawal, and 2) that you can pay and you take necessary arrangement for payment in time'.

The following structures are commonly used by banks in order to create Shariah-compliant credit card structures:

1. Ijarah

   Ijarah simply means 'lease to own'. The title of the purchased product belongs to the bank as long as final payment is made. The customer usually can decide whether to pay the bank by monthly instalments or cash payment. Once the final payment is made the bank will transfer title to the customer.

2. Kafalah

        In this concept the bank acts as the guarantor for its clients in order to secure the transaction. The bank guarantees the merchant to fulfill all obligations entered by the cardholder.

3. Qardh

The bank acts as the lender to the cardholder. These transactions usually apply when withdrawing money from a bank or ATM of card issuing bank or any bank accepting the card.

4. Bay Al-Inah

   In this concept the bank buys the product in the moment the card goes through. Then it sells the product to the customer at a higher price (costs plus x) and buys it back again at cost price. So the bank made a profit from the difference of prices.

Islamic credit cards do not come for free of course. Generally it implies application as well as transactional fees on a one-time or recurring basis. These fees (ujra) vary from bank to bank.  

According to the AAOIFI (Accounting and Auditing Organisation for Islamic Financial Institutions) standards these fees like membership fees, renewal fees, services charges, commission charges from merchants, etc. are permitted as long as they do not include interests. Special priviliges like airmiles, discount on hotel or other privileges are permitted too.

Most of the banks require sort of a cash deposit that is understood as ´goodwill investment´.

The banks usually reserve the right to decline payment or terminate the business when transactions are made that violate Shariah law like businesses related to gambling, massage and escort services, alcohol,...

Here are a few examples of Shariah-compliant credit cards issuing banks:

UAE 

• Standard Chartered Saadiq Visa Gold or Platinum Card 

• First Gulf Bank Makkah Credit Card

• Abu Dhabi Islamic Bank Covered Cards 

UK

• Cordoba Gold Cashplus prepaid MasterCard 

KSA

• Al Mubarak Credit Cards 

North America

• Um Financial iFreedom Plus MasterCard
  

 Malaysia

• AmBank AmIslamic Bank True card-i

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Comments (1)

• 2011-09-29 18:30:47 | Duleep

  Dear Sir,
  I would like to apply Islamic Credit card from your bank. But before that please send me Ijarah Islamic concept ist.

  My Email: duleeperanda@gmail.com

  Thank u
  Duleep perera

  
  

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