A conventional credit card holder even if he or she is certain that the full payment will be made to the bank within the time limit is not permissible because the user enters into a contract with the bank and is obliged to pay interest if he delays payment. This basic scenario has lead towards the inception of “Islamic Credit Cards.” There are three main areas for Islamic Credit cards:
1. Shariah Compliance
2. Visa/Master/JCB Compliance/Acceptance
3. Prohibition of Haraam Transactions automatically
Shariah Compliance– An Islamic Credit Card shall be compliant with Sharia’h rules – means shall be as per Islamic guidelines on lending. Hence, it shall avoid the basic prohibitions in Islamic finance such as Riba, Gharar, and Maysir.
- Riba – this concept is totally prohibited in Islam as per Holy Quran and Hadiths. Islamic Credit Card could not apply interest to payments even if the card holder is late in payments.
- Gharar – it means uncertainty. This is open to discussion or interpretations however Islamic cards shall not involve any charging scheme where the monthly repayments or service charges varies based on any factors.
- Maysir – means gambling. This is prohibited in Islam so Islamic credit card shall not have access to sites (e-commerce) where online gambling, liquir purchases, or pornographic access would be purchased. This has lead to another discussion of ‘insurance’ coverage.
Visa or Master Acceptance– Another main criteria for Islamic credit cards is, acceptance through Visa/Master or other major International cards payment network. This also requires features such as Card Not Present (CNP) transactions requiring CVV2 or holding amounts such as in hotel transactions unlike debit cards. Beside that, the merchant charges and issuer’s fee shall not be wit held, which means that acquirer will have to manage the arrears in their books and will be liable to IPS and intra scheme settlements.
Haraam Transactions Prohibition– Last but not least, Islamic cards shall not entertain or encourage transactions those are not allowed in Islam such as liquors, on line gambling, on line pornographic purchases, betting, and any transaction of inappropriate nature.
(Source: Islamic Finance Net – By Muhammad Ali Nadeem)