Customers have reported that they were surprised to learn about the charge fees required to obtain the credit cards offered by some banks as ‘Shariah-compliant’ and which have been approved by the Shariah committees of the banks in question. Many of the complaints revolve around the fact that despite the cards being Shariah-compliant, they end up deceiving and exploiting customers in Saudi Arabian banks and those who prefer to undertake usury-free transactions.
Some people reported falling victim to bank advertisements after being lured in by the promise of advertising campaigns and the fact that the credit cards were Shariah-compliant only to realize that they would continue to pay the accumulated monthly charges for a long time. Add to that the issuance fees which banks deduct upon issuing cards to customers.
An Islamic banking researcher who agreed to speak on condition of anonymity stated that the credit cards currently offered by banks entail usury and even resort to interest in some transactions. He added that this practice sometimes meant that charges exceed the interest rates employed by conventional banks for traditional credit cards.
The expert and researcher also added that banks practice a concept known as ‘Tawaruq’* and sell commodities in global markets on behalf of the customer, receive payment for them and pay the accrued interest on cards – provided that customers continue to pay the remaining installments on the card.* He also stressed that the Islamic Fiqh Academy (IFA) launched a sharp attack against the banks that had approved and endorsed these cards during its recent session held in Muscat.
The so-called interest received by Islamic banks or conventional banks that have Islamic banking divisions or branches comes through charging 60-100 Saudi Riyals (SAR) (US $16-26) or more according to the card type, aside from the annual fees – which means that the banks receive that ‘interest’ whether the customer uses the card or not.
According to the expert, the credit cards that are indeed Shariah-compliant are a limited. An example is the ‘charge card’ on which the issuing bank grants the cardholder a loan with within certain limits – depending on whether it’s a gold or silver card etc. – for a certain amount of time. However, the amount must be paid in full at the agreed upon time and in the case of overdue payments, no usury-related payments are charged. Usually the term of installment payments is between 45-54 days after which the payment is taken in full from the account.
Another expert in Islamic banking also agrees; he said that some Islamic banks offer credit card policies that are misleading and that resort to usury in their practices and that it causes great injustice to the customers and does not comply with Islamic religious provisions.
The expert, who specializes in Islamic law and transactional jurisprudence, believes that the burden of the responsibility belongs to the banks’ Shariah committees that encourage banks to offer such products which are unanimously prohibited by the majority of contemporary Muslim scholars. He added that most banks offering credit cards do so with the objective of acquiring interest – which is strictly and unequivocally prohibited by Islam.
The expert went on to warn people against falling into the trap of the so-called Shariah-compliant cards which launch effective advertising campaigns around this time of the year. Moreover, he stressed that the only Shariah-compliant credit cards are the charge cards which only a limited number of banks offer.
Meanwhile, the Shariah committees in banks have issued their defenses in the face of the accusations leveled against them and the debate is still ongoing. The expert also explained that credit cards represent a guarantee by the bank to the customer, particularly in places such as hotels which rely more on credit cards than they do on cash.
However, the Shariah committees believe that the administrative fees charged by banks are their right since they need to make a profit and thus do so without resorting to usury like conventional banks – but he agrees that most of the local banks [in Saudi Arabia] charge exorbitant fees.
Some believe that there is no such thing as non Shariah-compliant cards and uphold that customers have a choice to either accept the terms and authorize the bank to sell commodities through Tawaruk on their behalf, also paying the credit card’s interest through that, or not.
Today, the advertising campaigns of many banks can be seen throughout the cities with the advent of the summer holidays and they particularly target the women. These campaigns employ terminology and tactics and are devised in a manner that is both suggestive and convincing to lure potential customers into thinking that these credit cards are Shariah-compliant, and easy to possess and repay.
* Tawaruq: Shariah-compliant of finance through which loan finance is raised by buying installments in local commodities that are owned by the bank.
* Credit cards within the Islamic banking framework are linked to personal lines of credit to ensure that users only ‘borrow’ money from themselves and not the issuing bank. The banks, in turn, make money by charging fees.