Islamic Credit Card? a Corporate Paradigm...

Credit Card is known as ‘plastic money’, is an essential mode of payments in today’s society. People own credit card for various reasons such as to obtain credit facility, cash advance, easy payment, charge card and prestige. It has becoming way of life in the society nowadays that different types of credit card such as Master and Visa and category gold and platinum, represent the wealth status of a person. Undoubtedly the role of a credit card is more than that. Its important role in e-commerce transaction is undisputable.

However,

• How does Islam accept the role of credit card as a medium of payment?
• What are the underlying principles required by Shari'ah in the functionality of credit card?
• What would be the possible legal issues and how Islam addresses theses issues?
• What are the differentiation factors in the Islamic credit cards?

Credit Card- the Shari'ah Paradigm

It is often the case that the battle between Islamic and conventional credit cards is on product features. The impact of the competition in this lead the consumer’s preference to ask: 

• Which one offers more value for money?
• Which one offers low penalty rate?
• Which one offers free bonus points more?
• Which one looks fancier?
• Which one gives annual fee waiver?

However one should ask, are these the selling point for Islamic credit card? It is sad to see that many marketing strategies for Islamic credit cards talked about product features rather than selling the ethical values and concept underneath to the consumers. The equation that always in the mind of consumer about Islamic financial product is cheap. Meaning to say that, in any Islamic debt-financing facilities, the rate of return to the financier should be at the lowest point of the profitability quadrant. Why such discriminations exist?

Islam permits the use of credit card so long it does not involve the element of usury. As an example if the withdrawing cash advance from the credit facility will result payment of an interest, it is prohibited. Similarly if there is an additional interest charge due to delay in payment, it is prohibited also. Therefore, if the credit card serves as a charge card, where you only pay the principle amount that you use plus the service charges, it is permitted. Dr Monzer Kahf in Live Fatwa on Islam on line dated August 8, 2001 responded:

 “Signing a credit card contract and using it in a way that generated payable interest is haram. It is then borrowing on interest. Signing the contract, using it, and making the payments within the grace period and making no cash withdrawals (whenever cash withdrawals generate interest), is permissible because it amounts to a contract that gives you a choice to deal or not to deal with interest”.

 Islamic vs Conventional Credit Card

•  No money lending. Since the transaction of credit card is based on trade (Bai’), the element of usury will be eliminated from the loan transaction that is applied in the conventional money lending.
• None compounding of profit. Profit margin for the cardholders is fixed for the whole tenure (between three and five years) and the actual profit is charged based on the remaining balance. The monthly profit is calculated on a monthly basis, based on outstanding due or total transactions made for that particular month.
• Control on transactions/merchants. Users are allowed to carry out only halal, or Islamically permissible transactions. The bank will decline transactions for six categories of non-halal related activities, including bars, discos, night clubs, purchase of beers, escort and massage services and gambling.
• Islamic credit card can attract non-Muslim customers due to the attractive features offered. There will be no compounding factor for cardholders and the financing charges are on par with other credit cards offers.
• Some credit card issuer like Bank Islam Malaysia Berhad also offers free Group Personal Accident Takaful coverage and “Burial Services” for the first 50,000 successful applicants for the first year and free Group Family Takaful Coverage and “Burial Services” for the first 10,000 successful Gold Card applicants.

Conclusion

Shari'ah recognizes the role of credit card as a medium of payment as it does not contravene with principle of Shari'ah and under the doctrine of Masalih al-Mursalah it give comfortable life to Muslim community in term of socio economy and practicality of bai Al Inah in the modern environment. Indeed the justification in deriving that secondary source harmonizes with Qur'an and Sunnah. The underlying principles required by Shari'ah in the functionality of credit card is validated under Masalih Al-Mursalah, even though the used of doctrine Bai al-'Inah is debated among the Muslim scholar.