Islamic Credit Cards – An Introduction


  • Silwan Qurabn (MIFM Graduate Student, Effat University, KSA)
  • Mona Alansari (MIFM Graduate Student, Effat University, KSA)



1) A Credit card is a revolving credit facility within the credit limit and credit period is determined by the issuer of the card. It is also a mean of payment.

2) The holder of the credit card is able to pay for purchases of goods and services and to withdraw cash, within the approve credit limit determined by the card issuer bank.

At the very start of 20th century people used to pay cash for all the goods and services they buy, In 1920, Oil companies and department stores started offering courtesy cards which were metal charge plates, which holder can use to make purchase but such cards were mainly accepted only by the merchant who has issued them, such card were more like the modern days store cards.

There is famous story of McNamara’s dinner at Major’s Cabin Grill New York restaurant, next to the Empire State building, when McNamara finished his Dinner with his friends and reached into his pocket to pay money for meal and shocked when discovered that he forgot his wallet home, immediately called his wife to bring wallet and he paid bill with embarrassment, but from that Dinner he came up with new idea of credit cards which can be used at multiple locations. Mc Namara and his lunch friends Bloomingdale and Sneider all three pooled money together and created a new credit card company in 50’s named it as Diners Club.

At the very beginning Diners club credit card were given to 200 people mainly the friends, such card were initially accepted only on 14 new York restaurants and such cards were not made up of plastic instead of paper and accepted merchants were printed on the back of paper, just in second year profit was more than $60,000.

Diner’s club card first started as mass acceptance, which enabled the cardholder to spend more than no cardholders, and diners club charged 7% fee on each transaction, which also required holder to payback all amount at the end of each month. Just after one year it has 42,000 members and by 1953 it was the first internationally accepted charge card company, within just 40 years its position was challenged by the other major competing companies such as American Express which first issued the plastic card.

Among the other the most innovative one was bankAmericard started from California, and spread, it was most accepted in California, in later years Interbank card association emerged to smooth the transaction between merchant, bank and cardholder, BankAmericard eventually became Visa, while the inter bank card association letter became MasterCard. Both card got acceptance almost everywhere and later on issuer’s starts adding perks to attract more customers, the entry of discover card further enhanced competition. Up till late 1960 there were no concrete regulation in credit card industry although millions of people were now using this facility, and because of lack of regulation different issuers were charging much different interest rate and there were number of frauds in practices, the first major legal and regulation process started with “The Truth in lending Act and consumer credit protection act, with such acts standardize method of calculating interest introduced. More regulation were added for the consumer protection through the consumer credit protection act. After the 2008 financial crisis, more regulation were added in “the truth in lending act” through the card act of 2009.


How Does Credit Cards Work In Conventional Banking?

Conventional credit card system evolved after the Diners Club inc, and American Express. Under the conventional credit card banking system, merchants account is credited by the bank and money is immediately paid to the merchant, while charges are assembled to the credit card holder at the end of billing period, which the credit card holder pays to bank either entirely or in installment with the interest rate also called as Carrying charges.

Credit card is a financial product which is issued by your bank or other financial institution which allows you to make purchase and take cash advance. The main difference between the charge card and credit card is that charge card required you to make full balance payment at the end of month, which credit card allows you to carry balance indefinitely as long as you can make minimum payment at the end of each month.

Credit cards let you to spend money on credit, you can spend up to a limit which is preset when the card is issued, Once you use the credit card, you are required to make a minimum payment every month before the due date and if you are unable and failed to make that minimum payment, then the interest charges will be applied usually charges are applied to backdated when the goods or services is purchased. The best way to avoid any extra charges and using card wisely is to make sure that you are able to make monthly payment, and we can avoid any fiancé charges if we can make full payment back before the 30 days or end of month.

In normal credit card transaction there are three parties involve, 1) card issuer, 2) payment network 3) merchant. Whereas card issuer is your bank, payment network are normally widely accepted, Visa or MasterCard , normally logo are marked on our credit cards, and merchant is the place from where we make purchase, normally merchant has specially bank called acquiring bank which handle the transactions.

For example you finished your dinner in a bank, and swipe your card in a little machine to pay your bill, that machine transfer your information to merchant (Restaurant’s bank), merchant bank use the Visa or Mastercard payment network, receive authorization from the card issuer bank, once card issuer bank accept the transaction it transfer funds to network (Visa, MasterCard) which then sends funds to your restaurant’s or merchant bank’s account. Later on you pay the balance wither as whole or as in monthly installments.


How Does Credit Cards Are Structured In Islamic Baking?

In terms of functions and definition, the Islamic Credit Cards are same like the conventional credit cards, the only thing that is avoided and prohibited is Usury or interest rate, and Islamic credit cards are compliant with Shariah and Islamic principle especially regarding the payment of credit cards.

According to Islamic laws, hadiths and Quran, it is prohibited to pay interest on the money which is withdrawn in advance, like this all the additional interest charges of delaying payment is also prohibited, but if credit card are only served as charge card where you pay the principle amount plus the services charges then its allowed and permitted.

Tawarruq, Murabaha, Bay al Inah and Ujrah are widely used in recent Islamic banking, whereas Bal Al Inah means selling goods with immediate purchase, and Ujrah means service charges or charges against the rendering service.

Bay Al Inah involves selling and buy back transaction of assets by the seller, where seller sales asset to buyer at cash and then buy back on deferred payment basis at higher price,  so Bay al Inah is a two parties contract where a person sells commodity on credit at specific price, and then buy back at lesser price for cash, and the difference between that specified price and lesser price is called profit, modern Islamic banking refer that profit as the credit limits.

Islamic credit card are used and allowed only to buy halal goods and services, Islamic credit card cannot be used to purchase anything that is declared haram by the Shariah. The main different between the Islamic credit cards and conventional credit cards are Riba (interest) and Gharar (Overcharging) both are prohibited in Islamic.

Another famous financial instrument concept used in Islamic credit cards is Tawarruq, where the buyer buys a commodity from seller on deferred payment basis, and the sells same commodity to another party at cash or on the spot payment basis. Basically in this way initially buyer is borrowing cash from the bank via initially purchase, like this way in Islamic credit card use customer buy goods or services from bank on cost plus profit basis and then customer resale it on cash basis, so Tawarruq is basically transfer of ownership process and allowed by the shariah.

Ujrah is another concept used in Islamic credit, it’s the fee that Islamic banks charged against the services they render to its customers, so Ujrah is service fee.


Islamic Credit Cards Used In KSA

In Saudi Arabia, AlAhli Islamic Credit Card use the Taqarruq as a financial Instrument for making credit transaction, according to this concept as mentioned above customer buys the good or service from Islamic bank at a marked up price to be paid latter then quickly sales the goods for cash, but it is also necessary tangible assets should underlie all the transaction, for example buying a precious metal from bank at $1000 and then selling it to market at $900 cash.

SABB another bank in Saudi Arabia uses Tawarruq (Mal) and Murabah (SAHM) financial instrument for credit lending, where you can get credit up to SAR 1,500,000 with 5 years of repayment period, but the card holder mush be above 21 years and should have minimum salary above SAR 3000.

According to Tawarruq contact you buy a metal from SABB bank at higher price (bank keeps its profit) on deferred payment, and sale it into market for cash at lower price.

According to Murabaha concept SABB bank purchase Shariah compliant share from local stock market and sale you at known fix profit, after buying share from SABB bank you have the option either to invest share in halal investment portfolio or Sale share to generate cash.

Saudi Investment bank is another Islamic bank which issue Silver, Gold and platinum credit cards to its customers, SAIB and SAMBA credit card also works on Tawarruq principle basis as we discuss earlier.

AL Rajhi credit card works on Murahaha finance basis and offers customer flexibility where you buy now and pay later.  Here bank purchase goods such as car, furniture, electronics or any other goods on behalf of customer and then sell it to customer at a profit, and intermediary retain the ownership of the goods until the loan is fully paid.


Case Study – An Islamic Credit Of A Bank

United Arab Bank UAE

United Arab Bank in UAE functions on the basis of personal Murabaha Finance solutions which is a contract between the bank and its client, where bank purchase the goods and sell them to client at cost plus profit on deferred payment basis, and client is required to make payment to bank on installment basis, in this way bank can avoid the charging interest rate forbidden in Islam.

An example of Murabah finance is owning a car, for example you have a favorite car and you want to buy it but you don’t have money to pay it off at once, under United Arab bank Vehicle murabaha scheme bank will purchase the car for you can sell it to you at purchase price plus profit margin, and you will pay back money in installment, the benefit of this credit is that you know the profit and total amount which you have to pay to the bank.


MayBank Malaysia

Maybank is based in Malaysia and their credit card products are variety of Visa and MasterCards under the name of MAybankIkhwan.

The concept if MayBank Islamic credit card is based on the Bay Al Inah and Ujrah,  Bay al inah is buy back contract , where seller sale goods on credit at higher price and buy back on cash bases at lower price, different between two prices is profit and it’s also the credit limit.

But the problem with such method is that, buying and selling is pre-specified with no risk, which is haram in Islam, plus most of the cases this is only on the paper buy and sale and no actual physical asset is moved.

Because of the above mentioned problems bank also uses the Ujrah as financial instrument, which is basically charges for rendering services.

Like the conventional bank MayBank also has grace period of 20 days. And Maybank Islamic card requires 5% of the outstanding loan as the minimum payment. In case of failure to make minimum payment 1% of the outstanding loan is charges as a fee and then used to help needy people to perform Umrah trip.


Tsosie, Claire. “The History Of The Credit Card – Nerdwallet“. NerdWallet. N.p., 2017. Web. 26 Apr. 2017.

“The Incredible True Story Of The Very First Credit Card”. ThoughtCo. N.p., 2017. Web. 26 Apr. 2017.

ZAID, FATIMAH. “The Difference Between Conventional And Islamic Credit Card”. N.p., 2017. Web. 1 May 2017.

Erol, C., Kaynak, E. and Radi, E.B., 1990. Conventional and Islamic banks: patronage behaviour of Jordanian customers. International Journal of Bank Marketing8(4), pp.25-35.

Jamshidi, D. and Hussin, N., 2012. A conceptual framework for adoption of Islamic Credit Card in Malaysia. Kuwait Chapter of the Arabian Journal of Business and Management Review2(3), p.102.

Click to access Samba_Alkair_TC_en.pdf


Dubai Islamic Bank launches loyalty program for Al Islami Credit Cards

dib_logoAl Islami Credit Card members automatically enrolled for “Wala’a Dirhams”.


In a move to enhance cardmember experience, Dubai Islamic Bank (DIB) announced today the launch of Wala’a Dirhams, the loyalty program for Al Islami Credit Cards. The easy to earn and easy to spend loyalty program allows card members to earn unlimited Wala’a Dirhams on their card transactions.

Each Wala’a Dirham is equal to AED 1 in value and card members can redeem them against utility payments such as DEWA, SEWA, Etisalat payments, E-vision and RTA Salik recharge. Card members can also redeem their Wala’a Dirhams against gift vouchers for Carrefour, Union Co-operative Society, Sharjah Cooperative Society, Abu Dhabi Cooperative Society, Home Centre, Sharaf DG, Paris Gallery as well as travel vouchers.

Platinum and Platinum Plus Card members will earn 3%, Gold and Gold Premium Card members 2% and Classic Card members will earn 1% of their spends as Wala’a Dirhams.

Dr. Adnan Chilwan, Chief of Retail and Business Banking, DIB, said: “As part of our strategy to offer unique and convenient banking solutions to our customers, we have introduced a key benefit – Wala’a Dirhams – to our Credit Card offering. This program offers customers huge savings and rewards for using their Al Islami Credit Cards. As there is no limit to the Wala’a Dirhams that can be earned, cardmembers will find this program extremely rewarding. We have also taken this opportunity to re-launch our Al Islami Credit Card, with an objective of loading it with more value and benefits to customers.”

All existing Al Islami Credit Card members are automatically enrolled into the Wala’a Dirhams programme.

Ali Rahim, Head of Retail Products, DIB, said: “The facility of paying utility bills through Wala’a Dirhams earned on their Al Islami Credit Card will result in substantial savings for our cardmembers. Additionally, we have a range of benefit options for our customers to redeem their Wala’a Dirhams. We will continue to create special benefits and rewards to serve the financial needs of our customers.”

As a special offer to co-incide with the launch of Wala’a Dirhams, DIB also announced that any customer who gets an Al Islami Credit Card will receive a free mobile phone. This offer is valid till February 28, 2009 only.

About Dubai Islamic Bank

Dubai Islamic Bank (DIB), established in 1975, is the first Islamic bank to have incorporated the principles of Islam in all its practices. DIB is a public joint stock company and its share is quoted on the Dubai Financial Market. The bank enjoys a reputation as a leader and innovator in maintaining the quality, flexibility and accessibility of its products and services. In a very short space of time it has created market leading services and products that are setting benchmarks for the rest of the sector.

The bank reported AED 2.5 billion in net profit for the year ending December 31, 2007, rising by 60 per cent compared to AED 1.56 billion for 2006. The bank recorded total revenues of AED 7 billion for 2007, rising by 46 per cent compared to AED 4.8 billion for 2006. Total assets in 2007 reached to AED 84.3 billion, an increase of 31 per cent compared to AED 64.4 billion in 2006.

DIB set a world record by raising a US$3.52 billion sukuk for the Nakheel Group. This sukuk adopted an innovative structure never used before in Islamic or conventional banking history.

The bank has been proactive in creating partnerships and alliances at both the local and international level. DIB has adopted an aggressive expansion strategy, which started with the establishment of DIB Pakistan Limited, a wholly owned subsidiary of DIB. DIB opened its first representative office in Turkey to enhance its access to that market. DIB has also acquired a stake in Al Khartoum Bank and a stake in Emirates and Sudan Bank (ESB). These steps mark DIB’s ambitious plans to roll out its operations into regional and international markets as part of its overall strategic plan.

DIB has won the respect of its peers around the world. The bank was recently named by Islamic Finance News the UAE’s Best Islamic Bank. DIB has also received many awards from international organizations, such as the prestigious “Bank of the Year – UAE” award from The Banker magazine and additional accolades from Euromoney.

source : dubaichronicle

The Islamic Credit Card Controversy!

Riyadh, Asharq Al-Awsat – In recent years, the competition between Islamic banks has increased over offering Shariah-complaint credit cards – once a controversial subject among Islamic jurists. However, the prevalence and popularity of Islamic credit cards is also accompanied by customer complaints about the expensive costs charged by some Islamic banks that offer them. In fact; such credit cards have become even more expensive than the ones offered by conventional banks.

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.




Bahrain Islamic Bank Launches New Visa Credit Card

images44Bahrain Islamic Bank (BisB) today announced the launch of its new Islamic Visa credit card as part of its strategy to offer the best and most advanced credit card in the market. The ultimate objective of the Bank is to achieve the highest level of customer satisfaction.

On this occasion, BisBBisB Chief Executive Mr. Mohammed Ebrahim Mohammed said: “We, at BisBBisB, are pleased to contribute to providing our customers with the best and most advanced banking options through our new Islamic Visa credit card, especially designed to meet customers’ requirements both inside and outside the Kingdom of Bahrain at a very competitive price.”

The Chief Executive added: “The move to launch this credit card comes in the wake of strong demand from customers, who wish to have a credit card that is fully compliant with the rules of Islamic Sharia’a, and simultaneously, to be readily available to customers of different income groups while offering numerous benefits to the cardholders.”

Speaking about the features of this new card, Mr. Mohammed Ebrahim said: “The Islamic Visa credit card is certainly the best credit card available in the market and the most secure as it contained an intelligent electronic chip that prevents unauthorized use whether in the case of theft or loss.”

BisBBisB Visa credit card, which is Sharia’a compliant, comes in three different categories. Classic card offers its holder a credit limit from BD300 to BD5, 000. Gold credit card provides a credit limit of BD2, 000 to BD10,000. The Platinum Silver card provides a finance level of BD3,000 to BD20,000.

Speaking about the features of the credit card, the Chief Executive said holders of BisBBisB Islamic credit card can use it at 24 million establishments, ATMs and shops inside and outside Bahrain.

The Card also has the added benefits of offering its holder discounts on purchases at a number of merchants in Bahrain and will enable a one percent refund of purchases to the card account during the period up to 31st December, 2008. In addition, it will give its holder free miles from Gulf Air depending on the card type.

Concluding, Mr. Mohammed Ebrahim Mohamed BisBBisB Chief Executive said: “The launch of this card takes place at a time when we look forward to achieving our vision to be the best Sharia’a compliant financial solutions provider. The issuance of this card demonstrates our loyalty to our customers.

ABC Investments launches first Islamic Credit Card in Sri Lanka

colomboABC Investments launches first Islamic Credit Card in Sri Lanka


The ABC Investments Limited (Barakah Islamic Financial Services) ceremonially launched its first Islamic Credit Card in Sri Lanka at Holiday Inn Hotel, Colombo recently. This Card is tittled ‘ABC Barakah Credit Card.’ Also, this is the third Islamic Credit Card in the region. First in Malaysia, second in Pakistan and third in Sri Lanka. The first Islamic Credit Card in the World was launched in 2002 by ABC Islamic Bank in Bahrain.

ABC Investments Managing Director M.I.M. Razeek speaking at the launching ceremony said, “The ABC Group originating from shipping, freight forwarding, plantation, insurance convention, Credit Card, Islamic Investments under ABC Investments Ltd. The ABC Investment Limited (Barakah Islamic Financial Services) being operated strictly following the principles of Islamic Shari’ah Board. Every step is only upon the approval of its Shari’ ah Supervisory Board. The Board is led by Ash Sheikh Niyas Moulavi.

This Cards are issued in four types: – ABC Barakah – THAHAB (Gold) Card; ABC Barakah – ZAITOON (Olive) Card; ABC Barakah – BALAATEEN (Platinum) Card and ABC Barakah – MALA ( Elite) Card

The ABC Barakah has established three branches within the eight months. The branches are City Branch in Colpetty, Colombo, Pettah Branch in Main Street and Hill City Branch in Kandy. They hope to open more branches in the Eastern Province in Kattankudy, Eravur and Kalmunai.

Ash Sheikh M.I.M. Rizvi Mufthi, President of the All Ceylon Jamiyathul Ulama, Secretary Ash Sheikh Abdul Nazar and ABC Investments Shari’ah Board President Ash Sheikh Niyas Moulavi also addressed the launching ceremony.

source : bottomline

Islamic Credit Card Market Poised for Growth: Analyst

images42The credit cards marketed to Muslims carry no interest, favoring structured fees to cover the cost of lending.

While the MasterCard Worldwide and Visa International business models have dominated the global credit card industry for years, Islamic credit cards — which operate with an entirely different business model — are starting to evolve, primarily in Middle Eastern countries, according to Brian Riley, research director for TowerGroup.

“There is a definite need [for card issuers] in this market,” said Riley, who pointed out that current worldwide followers of Islam exceed 1.5 billion, or a quarter of the world’s population. So Tower estimates that total assets based in Islamic-compliant banks will exceed $1 trillion by 2011.

The Islamic credit card market, in existence for slightly more than a decade, has yet to be “stress tested” on a broad scale. However, given that adherents of the Islamic faith represent 24 percent of the world’s population, there is significant opportunity for card issuers to build volume. But to do so, they would need to change their business models.

The Islamic banking model rejects the assessment of interest in favor of structured fees, Riley explains. Islamic standards also require that all participating parties comply with Sharia, Islamic religious guidelines. More than the product itself must comply with the guidelines; the end-to-end business process must also comply.

Over the past several years, many financial institutions have created units solely focused on the needs of Muslims borrowers. For example, Sharia-compliant home mortgages became popular during the housing boom in the U.S. The mortgages, rather than charge interest, carried fees that were roughly equivalent to a traditional mortgage’s interest costs.

CitiBank and a few other financial services providers have entirely separate financial units to handle this growing market, said Riley. Other participants include traditional banks converting to the Islamic model and Islamic startups.

As the market emerges, entrants must foster both a sustainable business model and the ability deal with such core issues as interoperability with global card companies, product design and processing venues

source : insidearm