Shariah compliance of Islamic credit cards reconsidered : a case study of Malaysia

Abstract EN

Many structures have been proposed by Islamic banks in Malaysia for Islamic credit cards including murabah (sale with mark-up), bayʿ al-Inah (sale and immediate buy-back) and tawarruq (tripartite sale).

However, recently, some Islamic financial institutions have employed the contracts of ijarah (leasing), ujrah (fee) and musharakah mutanaqiṣah (diminishing partnership) as an alternative for structuring Islamic credit cards.

This paper aims to examine a new structure for an Islamic credit card offered by an Islamic bank in Malaysia using the contract of ujrah and kafalah bi al-ujr (guarantee with fee).

This paper is qualitative in nature and employs a case study to examine the Shariah issues arising from this structure.

Based on the case study presented, the paper finds that the structure combines three contracts-namely, qarÌ (loan), kafalah (guarantee) and ujr (fee).

The Shariah issues relate to the monthly management charges, cash withdrawal management charges and the combination of sale and loan contracts.

It is observed that the actual monthly management charges (AMMCs) and actual cash withdrawal management charges (ACWMCs) are comparable to riba al-qarÌ since the bank imposes fees tied to the amount of outstanding balance.

Meanwhile, the issue of combination of contracts arises as the product combines qarÌ (non-exchange contract) with kafalah bi al-ujr (exchange contract) in one deal.

This combination was prohibited by the Prophet (SAW) as it has been used as a method for circumventing the prohibibion of riba (interest).

This study proposes that the bank may retain the fixed monthly management charges (FMMCs) and fixed monthly cash withdrawal charges (FMCWCs), but it has to eliminate the AMMCs and ACWMCs as they amount to riba.

In order to resolve the controversial issue of combining exchange and non-exchange contracts, it is proposed that the contract of kafalah bi al-ujr be replaced with the concept of takāful (Islamic insurance).

Thus, with some improvements and modifications required in the structure of the Islamic credit card examined, this paper looks into ways of maintaining the Shariʿah compliance of the product