By Adil Manzoor Bakhshi
A big dilemma exists whether or not Muslims can or cannot use credit cards. To some Muslims, it is permissible if certain conditions are met and to some these are by no means Islamic. For the latter kind, some Islamic banks in Malaysia and Gulf have structured and developed credit cards which they say are shariah compliant. However, there is a large group which considers these cards as no less different from the conventional ones.

The author will attempt to address the first issue of whether conventional cards are permissible to muslims and if the credit cards available as Islamic credit cards are really in line with the beliefs of muslims or just another kind of conventional cards under Islamic banner. We all know of numerous arguments in favor of credit cards for example: they enable you to make large purchases by allowing you to spread payments over a period of time, carrying cash can be dangerous as you can be robbed, sometimes card is a prerequisite for transactions such as internet purchases and rental collateral for hiring cars.

The problem for muslim consumers is that the whole concept of the conventional card is unacceptable on religious grounds. Interest payments made when the outstanding balance is not repaid in full are riba payments, and therefore forbidden in Islam. However, there are various grey areas of interpretation that enable some muslims to believe that credit card usage can be done within religious beliefs by paying off the full outstanding 21 balance every billing month and never rolling over any balance to next statement period and avoiding cash withdrawals. According to them, by not carrying any outstanding balance to next billing period and avoiding cash withdrawals, riba can be avoided and thus, using a card in this way could be halal. This argument can be supported further by stating that all deeds are by intention and since the intention is to clear the full balance every time and not withdraw cash, card is halal.

However, Shariffa Carlo Al Andalusia, an Islamic scholar, has debated such interpretations as not holding water since the signing of a credit card agreement is the signing of an agreement to pay riba should the cardholder fail to make every repayment in full and on time. In her article on Credit Cards she argues “we are agreeing to commit a major sin, under certain circumstances, which we cannot guarantee will not happen, and which are improbable.” She further debates that few people who use credit cards stick to making 100% payments every month and due to factors like forgetfulness, changed financial circumstances, people take a huge gamble when they sign this contract by promising to commit a haram act. Apparently, to her if she considers the payment and the intention, it seems like it would be allowable but, stresses the importance of the wording of the contract which makes it totally unacceptable. She asks how many people will consider signing a contract that says “you will commit 36 acts of adultery for every dirham’s worth of what you would have paid as interest at a 10% rate of that you will marry your mother.” She wants to know how many scholars will consider it halal then.(Can a credit card ever, 2003)

Dr. Imran Usmani, a well-known Muslim scholar and a Shariah advisor at Al-Meezan in Pakistan, agrees with Carlo. Dr. Usmani is of the opinion that the interest charged on the card 22 users when there is a late payment is non-Islamic. “The premium charged constitutes riba… if this element is taken out, the card becomes Islamic”. (An Islamic Plastic Card, n.d.) Shaykh Ibn ‘Uthaymeen (may Allah have mercy on him) argues that a contract of this type is not permissible, because it involves riba which is the price of the card, and it also means committing to pay interest if payment is delayed. (Shaykh, 2002) In another fatwa he issued he states that credit card transaction is haraam, because the one who enters into it commits himself to paying riba if he does not pay on time. This is an invalid commitment, even if he believes or thinks it most likely that he will pay it before the time is up, because circumstances may change and he may not be able to pay it off. This is a matter that is in the future, and no one knows what will happen to him in the future. So dealings of this type are haraam. (Shaykh)

Dr. Monzer Kahf, a prominent Muslim economist and counselor describes the credit card as a new invention and Muslim scholars define it as either a guarantee given by the issuer to the seller who accepts it or as a transfer of the debt by the debtor to another party, the issuer. Hence, it falls within the permissible transactions. However, there are two problems, one for the issuer and the other for the user; this relates to the fact that the contract here usually contains an interest article if payment is delayed and if cash is withdrawn. Issuing such a card with this interest condition is not permissible in Shariah. Islamic banks can’t issue it with such a condition.(Kahf, 2002) He gives reasons that the credit card provides convenience and removes hardship. He has wished that the interest condition is not inserted in the contract, but unfortunately in most 23 countries there are no Islamic institutions that issue such cards, and even those cards issued in some countries are not really satisfactory because they are limited in scope and usability. In other words you are not signing a loan contract with interest but you are signing a contract that gives you the choice to make the interest applied or not. Consequently, if you know for sure that you can use it without incurring any interest you make the interest clause useless and it is permissible to sign such a contract and use the card. (Kahf)

Justice Maulana Muhammad Taqi Usmani, a renowned Shariah scholar, permits the use of credit card by a purchaser and declares that it is allowed in Shariah, no matter whether the card is issued by a banking institution or some other company.

However, the following points must be borne in mind in this respect:

(i) The best way of using these cards is to authorize the card issuer to directly debit your bank account for payments to avoid the possibility of default which may in some cases, carry the risk of interest.

(ii) If the system of direct debit is not arranged, one must always be careful to pay the bills within the stipulated time without fail, so that interest may not be imposed.

(iii) The annual fee paid by a card-holder to the card-issuing company is not interest; rather it is a free charged for certain services rendered by the company for the benefit of the holder. That is why it is charged irrespective of the amount actually spent by the holder.

The second question is whether it is permissible for a seller to accept credit card. This question has been a point of debate between the contemporary scholars of Islamic 24 jurisprudence. Some of them are of the view that the amount charged by the card-issuing company to the shopkeeper is analogous interest. They say that it is equal to discounting a bill of exchange, hence not allowed in Shariah.

However, some other scholars are of the opinion that it is not interest. On the contrary, it is a fee charged by the company for certain efforts undertaken by it. Firstly, the company has to do a lot of work for the benefit of the seller. Therefore, the commission charged by it is similar to the commission of a broker which is undoubtedly permissible. This commission is different from discounting a bill of exchange, because the rate of discount in a bill of exchange is always tied up with the period of its maturity, while the commission charged by the company from the merchant is not so linked. This commission is determined irrespective of the time on which the card holder shall pay the amount to the company. Therefore, it is just like a commission charged for brokerage services. In his personal opinion, the second view seems to be more preferable. He argues that it is incorrect to assume that all contracts involving three parties are invalid and prohibited; rather, the permissibility or impermissibility of a contract depends on the actual terms and conditions upon which it is based. (Usmani, n.d.)

According to the majority of the contemporary scholars (fuqaha), the usage of credit-cards is permitted provided the card-holder is sure he has the ability and will actually pay off the debt to the card issuing company before any interest becomes due. The relationship between the card-holder and the card-issuing company, from a juristic (fiqhi) point of view as described by Muhammad (2005) has many ingredients. The 25 relationship has an element of brokerage/agency (wakala), guarantying payment (kafala) and lending money (iqradh). The company undertakes and guarantees payment on behalf of the card-holder; hence this would form the relationship of Kafala. There is also a promise from the card-issuing company to give the card-holder a loan, and when the card-holder actually uses the card, the relationship of agency (wakala) and actual giving of loan comes into play. The company pays the seller on behalf of the card-holder; hence the company would be considered an agent on behalf of the card-holder, and also forwarding a loan to him.

All these three relationships (i.e. agency, guarantying payment, and giving of a loan) are permitted in Shariah, as mentioned in detail in the books of Fiqh. Thus, there is nothing that would make this contract unlawful. As for the relationship between the card-holder and the seller of goods is concerned, contemporary scholars state that the relationship here would be that of the debtor passing on the responsibility of payment of his debt to a third party, known in Islamic jurisprudence as Hawala. Here, the card-holder passes the responsibility of paying for the goods to the card-issuing company. This transferring of responsibility comes into existence when the card-holder signs on the receipt of purchase. Hence, the seller would be obliged to take payment from the one to whom the buyer passed on the responsibility. This contract of Hawala is also permitted and discussed in detail in the various books of fiqh. Lastly, the relationship between the card-issuing company and the seller has been a matter of debate between the contemporary scholars. Some scholars had reservations on the usage of creditcards due to the uncertainty of this relationship.

However, as Shaykh Taqi Usmani and others have explained, this relationship is also one of agency, in that the issuing company acts on behalf of the seller also. The company has to do a lot of work for the benefit of the seller; hence it charges the seller commission for the service provided.

Thus, the card-issuing company would be considered a broker and the amount charged by the company is like a commission charged for brokerage services. There is nothing wrong with this relationship 26 also, neither is it unlawful for the company to charge the seller a commission in return of the service provided. From the card issuer’s point of view there are several obvious problems. Bank will make little or no revenue from such a card if balance is paid in full and also in religious terms it will be colluding in the commitment of sin if it arranges and signs a contract wherein a Muslim agrees to pay riba in the case of non-payment of the balance. (Can a credit card ever, 2003)

Despite these complexities involved, banks in MENA and Asia decided that 250 million Muslims who want and need financing options are too big an opportunity to pass up on and offered credit cards that aren’t credit cards at all in a conventional sense but simple debit cards from functionality point of view.