Ethica Institute of Islamic Finance™

Are Islamic Financial institutions permitted to issue charge cards?

For the avoidance of doubt, by charge card we mean a credit accessing instrument for which the debt incurred is to be paid off to the bank within a month's time. The charge card does not provide a revolving credit facility and the card holder is obliged to repay within a stipulated period. If the card holder delays payment beyond the established period of free credit, an interest amount is imposed. The bank does not charge any percentage on purchases but receives a percentage commission from the party accepting the card for purchases made by the card holder. The bank charges its client a merchant service fee. In Islamic finance, the charge card is permissible as long as the holder is not obliged to pay interest at any time. The financial institution is permitted to charge the card holder to pay a sum of money as a guarantee for providing the charge card facility. The amount taken as a guarantee is accepted by the financial institution based on a Mudarabah. The profit earned from the Mudarabah is shared between the card holder and the institution according to an established ratio. The institution must stipulate that the card holder may not use the card for any non-Shariahcompliant activity or purpose. The bank reserves the right to withdraw the card if it is used in contravention to Shariah rulings.

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