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Financial institutions play a crucial role in today’s financial transactions, offering a range of services. Among the most commonly used services are ATM services. ATM cards allow customers to perform various tasks, such as cash withdrawals, utility bill payments, and deposits.
There are three main types of ATM cards:
I) Debit Card: This card is linked directly to the account holder’s bank account. The cardholder can only access the funds they have deposited in their account for withdrawals, bill payments, and other transactions.
II) Credit Card: Unlike a debit card, a credit card allows the account holder to borrow money from the bank, up to a certain limit, and repay it later. It is not linked directly to the account holder's bank account, and it offers revolving credit, meaning the credit limit is renewed as the balance is paid off.
III) Charge Card: A charge card is like a credit card, but with one key difference: the cardholder must pay off the full balance by the end of each billing cycle. It does not offer revolving credit, and the credit limit is typically not predefined, but the account holder is expected to pay in full every month.
For further detail and characteristics of Debit, Credit and Charge card, please read the AAOIFI Shariah standard number 2,
Read more about: Is Islamic Banking Truly Halal?
A conventional credit card involves interest-bearing transactions, where the cardholder may end up paying more than the borrowed amount, which is considered impermissible from a Shariah perspective.
In contrast, an Islamic credit card is based on a sale contract, typically structured as a Commodity Murabaha, where the terms and conditions comply with Shariah principles and avoid interest.
The credit card holder can avoid engaging in haram activities by instructing the card issuer to directly deduct the payment from their bank account.
Some card companies allow payments to be deducted either from the holder’s account within the same bank or from an account at another bank. By setting this condition, the cardholder can avoid paying interest. (Fiqh-othmani-1 (1), n.d.)
If someone is assured of paying the principal amount without incurring interest, contemporary scholars have differing views on the use of credit cards. Some scholars argue that signing an interest-bearing contract is forbidden from a Shariah perspective, even if the individual intends to pay the principal on time.
Others believe that if the cardholder is certain they will pay the bill within the specified period and the interest condition is not actually applied, then using the credit card is permissible. They cite the hadith of Aisha (R.A.) in the story of Barirah (R.A.),
where the Prophet (PBUH) said: "Stipulate loyalty for them, but loyalty for the one who frees." (Bukhari, kitab Ul buyo, hadith no. 2168). This suggests that stipulations not implemented in practice can be allowed.
In conclusion, the use of credit cards is permissible in cases of necessity, as long as the payment is made on time and no interest is incurred. (Fiqh-othmani-1 (1), n.d.)
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According to the AAOIFI statement, it is not permissible for institutions to issue credit cards that offer an interest-bearing revolving credit facility, where the cardholder pays interest for the privilege of deferring payment. (Ummah, 2019)
In credit card transactions, Riba (interest) occurs when the card issuer pays the merchant on behalf of the cardholder, and the cardholder is then given a grace period to repay the amount with interest. This practice is considered usurious and is impermissible.
The features of an Islamic credit card differ significantly from those of a conventional credit card. In an Islamic credit card, the cardholder and the bank enter into a Shariah-compliant contract.
The cardholder agrees on a fixed amount available for use, and the contract is based on Commodity Murabaha. In this arrangement, the bank purchases a commodity through an Islamic mutual fund and sells it to the cardholder on a deferred Murabaha basis.
Once the commodity is in the possession of the cardholder, they sell it to a third party through an agent, and the proceeds are deposited into the cardholder's account.
In contrast, a conventional credit card involves a lending contract where the institution provides a loan to the cardholder, and the cardholder repays the principal amount along with interest.
The following banks offer halal credit cards:
i) Abu Dhabi Islamic Bank (ADIB).
ii) Emirates Islamic Bank (EIB).
iii) Sharjah Islamic Bank (SIB).
v) Dubai Islamic Bank (DIB)
i) Al Rajhi Bank.
ii) Bank Aljazira
iii) Alinma Bank
v) National Commercial Bank (NCB)
In cases of necessity, the intention (Niyyah) plays a crucial role when using a credit card. If the cardholder intends to repay the borrowed amount before the due date to avoid interest, this is permissible.
However, if someone has no intention of paying off the loan on time, they are at risk of committing a sin by engaging in interest-based transactions.
If an institution imposes late fees and penalties on a credit card, it resembles a usurious transaction, which is impermissible from a Shariah perspective, so it will affect the Halal status of credit card.
If it is not possible to use or obtain a debit card, and there is no option to deduct the loaned amount directly from the cardholder’s account,
yet there is a serious need to use a credit card, the cardholder may be excused from entering into the contract, provided they take all necessary precautions to avoid paying interest. (Fiqh-othmani-1 (1), n.d.)
References:
Fiqh-othmani-1 (1). (n.d.).
https://aaoifi.com/ss-2-debit-card-charge-card-and-credit-card/?lang=en
https://www.adib.ae/en/siteassets/cards-terms-and-conditions/adib_covered-card_terms_and_conditions_v14.pdf
Disclamer:
This post is for educational purposes only, and the Firm does not directly or indirectly provide these services.
