Credit card is a valuable piece of rectangular plastic. This is because a credit card acts as a bridge between the bank and the account holder. The account holders can use their credit card to borrow funds from the bank or financial institution. The aim is to pay for the goods or services they received through an easier method of payment which is by debts. This is the power of this piece of plastic.
However, credit cards are often associated as the cause of massive debt burdens that people find themselves in. The debt burden from the credit cards is not the only cause, but the high interest rates they carry are, and these transactions contain the element of riba. Muslims are prohibited from engaging in any transaction that contains an element of riba because riba is haram. But, did you know that Islamic financial institutions also issue Islamic credit cards? How can this credit card become Islamic?
Mechanism of Islamic Credit Card
What makes Islamic credit card different from a conventional card is that it is based on a shariah-compliant Islamic contract and also will minimize the risk of being burdened with debt. There are three Islamic financial contracts that are commonly used in Islamic credit card products namely Qard, Ujrah and Tawarruq, but here we will focus on Qard and Ujrah only.
Qard
Qard is an interest-free loan contract that is intended to help a person who is in need of cash. Under this contract, the bank will fill the card with an interest-free loan (Qard). Then, the Cardholder can utilise the Qard given within the Credit Limit. The Bank is hereby authorised by the Cardholder to disburse the Qard in the amount equivalent to the utilised amount to the Merchant, Cardholder or any identified third party according to the mode of Card utilisation. The Cardholder then is required to pay back the Qard or amount utilised within the due date agreed.
In providing the Qard to the Cardholder, the Cardholder also can be penalised for default and late payments penalty (Gharamah) by the bank. The penalty money then should be donated to charity agencies and not considered as a part of the bank's income. However, in exchange for granting the credit card facility, the bank also provides certain services, benefits and privileges for the Cardholder to enjoy. The Bank is entitled to charge Ujrah to the Cardholder whereby the amount charged upon said party is fixed regardless of the utilized amount of money.
Ujrah (Service Fees)
All scholars agree that Ujrah is permissible in Islam and the permissibility is based on sources from the verse of al-Quran in Al-Qasas verse 26:
"O my father, hire him. Indeed, the best one you can hire is the strong and the trustworthy."
The SAC also, in its 77th meeting dated 3 July 2008 and 78th meeting dated 30 July 2008, has resolved that credit card structure based on the concept of Ujrah is permissible, subject to the following conditions:
- Islamic financial institutions shall ensure that the Ujrah is imposed as a consideration for the provision of actual or non-fictitious services, benefits and privileges that are permissible under Shariah;
- The imposition of different amount of Ujrah on various types of credit cards that offer different kind of services, benefits and privileges is permissible;
- The imposition of Ujrah on the services, benefits and privileges that are not related to Qard, deferment of debt and exchange of cash with cash at a different value is permissible;
- The imposition of Ujrah on the services, benefits and privileges relating to Qard, deferment of debt and exchange of cash with cash at a different value is not permissible. However, charges may be imposed to cover the actual management cost (Nafaqah/Taklufah).
Conclusion
The significance of Islamic credit cards is enormous. Islamic credit cards differ from conventional cards in that there are no compounding or interest rates charged. Muslims can arrange their finances while using these shariah-compliant services. If you have never applied for an Islamic credit card, you should get one now. You can find the best ones that suit your preferences at https://sharlife.my/credit-card