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Islamic Credit Cards
Countries:United Arab Emirates101Malaysia88Saudi Arabia111Pakistan8Indonesia10Qatar38All countries

Contract structure

Kafalah

The bank stands behind you and promises the shop it will pay, then collects from you.

كفالةGuarantee / suretyship10 cards use it

How it works

Kafalah is a guarantee. Someone takes on the responsibility for another person's obligation. On a card this describes what the issuer actually does economically: it guarantees the merchant, or the card scheme, that your purchases will be paid, then recovers the money from you. Indonesia's national fatwa builds its card on this idea, with the issuer as the guarantor (kafil) for the cardholder against the merchant. Whether the bank may charge you a fee for standing behind you is one of the sharpest disagreements in this whole subject, and the answer differs by country.

What it looks like in numbers

Illustrative figures, not a real product. You buy Rp 2,000,000 of goods. The bank guarantees the merchant and pays. You now owe the bank Rp 2,000,000. Under Indonesia's DSN-MUI fatwa the bank may charge you a kafalah fee for having given that guarantee, and that fee must be set clearly and fixed at the time you apply for the card. Under AAOIFI's rules the bank could not charge you anything for the guarantee itself; it could only recover expenses it actually incurred. Same transaction, two different bills, both certified compliant in their own jurisdiction.

The argument

Scholars do not all agree about this structure. Both positions are set out here because you are entitled to see the disagreement rather than one side of it.

Why it is accepted

Guaranteeing another person's debt is permitted and is treated in classical law as an act of charity. DSN-MUI Fatwa No. 54/DSN-MUI/X/2006, clause Ketiga (a), makes the card issuer the kafil for the cardholder in respect of all payment obligations arising from transactions with merchants and cash withdrawals from banks or ATMs other than the issuer's own, and states that for giving the kafalah the issuer 'dapat menerima fee (ujrah kafalah)', that is, may receive a fee. Clause Kelima (d) repeats the permission and clause Kelima (e) requires all such fees to be set clearly and fixed at the time of the card application, except the merchant fee.

Why it is challenged

AAOIFI takes the opposite view. Shariah Standard No. 5 clause 3/1/5 states that 'it is not permissible to take any remuneration whatsoever for providing a personal guarantee per se, or to pay commission for obtaining such a guarantee', though the guarantor may claim expenses actually incurred. Clause 6/1/1 explains the reasoning for letters of guarantee: a fee is not allowed where it is consideration for the guarantee itself, 'since the amount guaranteed and the duration of the guarantee are usually taken into consideration in computing remuneration'. In other words, a guarantee fee tends to be priced like interest, off the size of the exposure and the length of it. Appendix B adds that a guarantee 'is one of the contracts of charity' and that 'the majority of Fuqaha agree that it is prohibited to take consideration for guarantee'. Bank Negara's SAC criticised a wakalah-and-kafalah card at its 78th meeting on 30 July 2008 on a related ground: the fee could not be set as a percentage of the credit limit.

Where AAOIFI stands

A fee for the guarantee itself is not permitted. AAOIFI Shariah Standard No. 5 clause 3/1/5 prohibits any remuneration for a personal guarantee per se and permits only recovery of expenses actually incurred; clause 6/1/2 permits administrative expenses for a letter of guarantee provided they do not exceed what others would charge for such services. This is a real and unresolved difference with the Indonesian fatwa, and consumers in the two markets are being charged on different principles.

The rulings that govern it

  • DSN-MUI · Fatwa No. 54/DSN-MUI/X/2006 on Syariah Card, clauses Ketiga (a), Kelima (d), Kelima (e)

    The issuer acts as guarantor for the cardholder and may receive a kafalah fee. All cardholder fees must be stated clearly and fixed when the card is applied for, except the merchant fee.

    Read the source

  • AAOIFI · Shariah Standard No. (5), Guarantees, clauses 3/1/5, 6/1/1, 6/1/2 and Appendix B

    No remuneration may be taken for a guarantee itself, because a guarantee is a charitable undertaking and its pricing tracks amount and duration. Only actual administrative expenses may be charged.

    Read the source

What to watch for

  • If your card charges a kafalah fee, ask how it is calculated. A fee that rises with your credit limit or with how long the exposure lasts is the pattern AAOIFI singles out as interest-like.
  • In Indonesia the fatwa requires the fee to be fixed and disclosed at application. If a fee moves afterwards, that is a compliance question worth raising with the bank's Shariah supervisory board.
  • Kafalah is rarely used alone. Look at the whole package of contracts on your card, because the fee may be attached to a different leg of it.
  • A guarantee benefits the merchant and the card scheme as much as you. Ask what you personally are paying for.

Cards built on Kafalah

10 cards across 1 market.

Indonesia10

Bank Syariah Indonesia

BSI Hasanah Card Classic

Annual fee
Rp 120,000
Profit rate
Not published
Minimum income
Rp 3,000,000 a month
Structure
Kafalah + Qard Hasan + Ijarah

Full breakdown

Bank Syariah Indonesia

BSI Hasanah Card Gold

Rp50,000 welcome bonus on first activation and transaction

Annual fee
Rp 240,000
Profit rate
Not published
Minimum income
Rp 3,000,000 a month
Structure
Kafalah + Qard Hasan + Ijarah
Cashback

Full breakdown

Bank Syariah Indonesia

BSI Hasanah Card Platinum

Rp150,000 welcome bonus plus free airport executive lounge access

Annual fee
Rp 600,000
Profit rate
Not published
Minimum income
Rp 3,000,000 a month
Structure
Kafalah + Qard Hasan + Ijarah
Cashback

Full breakdown

CIMB Niaga Syariah

OCTO Card Syariah

Annual fee
No annual fee
Profit rate
Not published
Minimum income
Not published
Structure
Kafalah + Qard Hasan + Ijarah
Reward points

Full breakdown

CIMB Niaga Syariah

Syariah Gold

25 Poin Xtra for every Rp50,000 of retail spend

Annual fee
No annual fee
Profit rate
Not published
Minimum income
Rp 3,000,000 a month
Structure
Kafalah + Qard Hasan + Ijarah
Reward points

Full breakdown

CIMB Niaga Syariah

Syariah Platinum

Annual fee
No annual fee
Profit rate
Not published
Minimum income
Not published
Structure
Kafalah + Qard Hasan + Ijarah
Reward points

Full breakdown

See all 10 cards using Kafalah

Sources

  • DSN-MUI, Fatwa No. 54/DSN-MUI/X/2006 tentang Syariah Card.
  • AAOIFI, Shariah Standards, 2015 English edition, Shariah Standard No. (5) Guarantees.
  • Bank Negara Malaysia, Shariah Resolutions in Islamic Finance, 2nd edition (2010), item 93.

This explains the mechanism, not the ruling

Understanding how a contract works is not the same as knowing whether it is acceptable to you. On that, ask a scholar you trust. The wider debate is here.

The other contracts

UjrahThe bank charges you a fixed fee for the service of giving you a card, rather than a charge that grows with the money you owe.TawarruqThe bank sells you a commodity on credit at a marked-up price, you sell that commodity to somebody else for cash, and the cash becomes your spending limit.Bai' al-InahThe bank sells you an asset on credit at a high price and immediately buys the same asset back from you for a lower cash price, so you walk away with cash and a bigger debt.MurabahahThe bank buys the thing you want, then sells it to you at a stated cost plus a stated profit, payable later.SalamYou sell the bank a quantity of goods to be delivered in future, the bank pays you the whole price today, and that advance payment is what you spend on the card.Qard HasanThe bank lends you the money and you pay back exactly what you borrowed, not a penny more.IjarahYou are renting the use of the card and the payment system, and the rent is the fee.WakalahThe bank acts as your agent, paying the shops on your behalf, and charges you an agency fee.Ta'widh and GharamahTwo different late-payment charges: one is meant to reimburse the bank's real costs and it keeps that money, the other is a fine and in some countries the bank must give it away.