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Islamic Credit Cards
Countries:United Arab Emirates101Malaysia88Saudi Arabia111Pakistan8Indonesia10Qatar38All countries

Contract structure

Qard Hasan

The bank lends you the money and you pay back exactly what you borrowed, not a penny more.

قرض حسنBenevolent loan55 cards use it

How it works

Qard means a loan. Qard hasan is a loan that carries no return for the lender. In Islamic law a loan is an act of kindness, not a business, so any pre-agreed benefit that the lender gets back on top of the principal is riba. On a card, this is the cleanest structure to explain and the hardest to make money from: the bank settles your purchases and you repay the same amount. Standard Bank South Africa's Shariah charge card is structured on Qardh. Because a bank cannot profit from the loan itself, qard cards are almost always paired with a separate fee for a separate service, which is where the argument starts.

What it looks like in numbers

Illustrative figures, not a real product. You spend R 4,000 on the card in March. The bank has paid the merchants R 4,000 on your behalf. On the due date you owe R 4,000. Not R 4,050, not R 4,000 plus a percentage. If the bank also charges you a card fee of R 60 a month, that fee has to be the price of an actual service and has to be the same whether you owe R 4,000 or R 40, otherwise it is a return on the loan under another name. If you pay late, a bank following AAOIFI cannot charge you compensation at all; a bank following Malaysian or Indonesian rules can charge a late amount but a large part of it must go to charity rather than to the bank.

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

Lending without a return is permitted and encouraged. AAOIFI Shariah Standard No. 19 covers Qard. AAOIFI Shariah Standard No. 2 clause 4/5/1 confirms that a cardholder may withdraw more than his available funds 'with the agreement of the Institution issuing the card, provided no interest is charged', and its Appendix B item 8 calls this 'a permissible loan'.

Why it is challenged

The rule that bites is 'every loan that draws a benefit is riba'. AAOIFI applies it directly to cards in Appendix B item 9 of Standard No. 2: where the bank requires you to deposit a sum before approving the card, it may not stop you investing that money, 'as this would be tantamount to a loan that draws extra benefit'. Bank Negara's SAC applies the same logic to fees: at its 78th meeting on 30 July 2008 it held that setting a fee as a percentage of the credit limit 'would give rise to the issue of conditional benefit on loan (qard), which is prohibited by the Shariah'. So the objection to a qard card is rarely to the loan. It is to the fee bolted onto it, and to any deposit, float or balance the bank gets to keep the use of.

Where AAOIFI stands

Qard is covered by Shariah Standard No. 19. Standard No. 2 permits an interest-free overdraft on a card (4/5/1) and permits a flat, non-scaling cash-withdrawal service fee (4/5/2), and its Appendix B item 9 warns against any arrangement in which the loan draws an extra benefit for the lender.

The rulings that govern it

  • AAOIFI · Shariah Standard No. (2), clauses 4/5/1 and 4/5/2, Appendix B items 8 and 9

    An interest-free advance on a card is a permissible loan. The service fee for cash withdrawal must be flat and must not vary with the amount. A required deposit that the bank stops the customer investing turns the arrangement into a loan drawing extra benefit.

    Read the source

  • Bank Negara Malaysia Shariah Advisory Council · Shariah Resolutions in Islamic Finance, 2nd edition, item 93 (78th meeting, 30 July 2008)

    A fee based on a percentage of the credit limit raises the issue of a conditional benefit on a loan, which is prohibited.

    Read the source

  • DSN-MUI · Fatwa No. 54/DSN-MUI/X/2006 on Syariah Card, clause Ketiga (b) and Kelima (c)

    Qardh applies where the cardholder withdraws cash from the issuer's own bank or ATM. The cash-withdrawal fee is allowed as a charge for the service and facility, and its size must not be linked to the amount withdrawn.

    Read the source

What to watch for

  • A qard card with a fee that rises as your limit rises is doing by fee what it is not allowed to do by interest. Ask for the fee schedule against limit before you apply.
  • Ask whether any security deposit you must place is invested for your benefit. AAOIFI requires that it be, otherwise the arrangement becomes a loan that pays the bank a benefit.
  • A cash-advance fee expressed as a percentage of the amount withdrawn contradicts AAOIFI clause 4/5/2 and DSN-MUI clause Kelima (c). A flat fee per withdrawal is the compliant shape.
  • Qard hasan means you owe the principal. It does not mean you can pay whenever you like: deliberately delaying payment when you can afford to pay is itself prohibited under AAOIFI Standard No. 3 clause 2/1/1.

Cards built on Qard Hasan

55 cards across 8 markets.

United Arab Emirates3Bangladesh6Indonesia10Kuwait9Oman12Qatar9Saudi Arabia5South Africa1

Ajman Bank

Roadmiles Classic Credit Card

Annual fee
AED 200
Profit rate
Not published
Minimum income
Not published
Structure
Qard Hasan + Ujrah
Air miles

Full breakdown

Ajman Bank

Roadmiles Platinum Credit Card

Annual fee
AED 300
Profit rate
Not published
Minimum income
Not published
Structure
Qard Hasan + Ujrah
Air miles

Full breakdown

Ajman Bank

Roadmiles Premium Credit Card

Annual fee
AED 250
Profit rate
Not published
Minimum income
Not published
Structure
Qard Hasan + Ujrah
Air miles

Full breakdown

Al-Arafah Islami Bank

La-Riba Islamic Credit Card — Silver

First year free, and no annual fee thereafter on 18 transactions a year

Annual fee
Tk 1,000
Profit rate
Not published
Minimum income
Not published
Structure
Qard Hasan + Ujrah

Full breakdown

Al-Arafah Islami Bank

La-Riba Islamic Credit Card — Gold

First year free, mid-tier carrying cost of Tk. 1,170 a month

Annual fee
Tk 2,000
Profit rate
Not published
Minimum income
Not published
Structure
Qard Hasan + Ujrah

Full breakdown

Al-Arafah Islami Bank

La-Riba Islamic Credit Card — Platinum

Complimentary Balaka and worldwide airport lounge access, for supplementary holders too

Annual fee
Tk 3,000
Profit rate
Not published
Minimum income
Not published
Structure
Qard Hasan + Ujrah

Full breakdown

See all 55 cards using Qard Hasan

Sources

  • AAOIFI, Shariah Standards, 2015 English edition, Shariah Standard No. (2) clauses 4/5/1, 4/5/2 and Appendix B items 8, 9; Shariah Standard No. (19) Loan (Qard); Shariah Standard No. (3) clause 2/1/1.
  • Bank Negara Malaysia, Shariah Resolutions in Islamic Finance, 2nd edition (2010), item 93.
  • DSN-MUI, Fatwa No. 54/DSN-MUI/X/2006 tentang Syariah Card, 18 Ramadhan 1427 H / 11 October 2006.

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