Ujrah

How it works

Ujrah means a fee paid for a service. On an ujrah card the bank says it is selling you a service: a card, a payment network, a statement, a dispute process, an airport lounge, whatever the card comes with. It charges a set fee for that service, usually monthly or yearly. The fee is meant to be the price of the service, not the price of the credit. So in principle the fee should be the same whether you owe the bank nothing at all or you owe it the full limit. If the fee goes up because you owe more, or because you took longer to pay, then it has stopped being a service fee and has started behaving like interest. That single test is what most of the argument about ujrah cards turns on.

What it looks like in numbers

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.

Where AAOIFI stands

AAOIFI Shariah Standard No. 2 never uses the word ujrah for cards. It permits membership, renewal and replacement fees (4/3), a flat cash-withdrawal service fee that does not vary with the amount withdrawn (4/5/2), and merchant commission (4/2); and it prohibits any charge that indirectly prices the credit (4/1/2). Read together, a fixed service fee is permitted and a fee that scales with the credit is not. Anyone who tells you AAOIFI 'approves the ujrah credit card' is over-reading the standard.

The rulings that govern it

• AAOIFI · Shariah Standard No. (2), Debit Card, Charge Card and Credit Card, clauses 4/1/2, 4/3, 4/5/2

  Membership, renewal and replacement fees are permitted. Cash-withdrawal fees must be flat and must not vary with the amount withdrawn. No charge may price the credit granted, even indirectly.

  Read the source

• Bank Negara Malaysia Shariah Advisory Council · Shariah Resolutions in Islamic Finance, 2nd edition, item 90 (77th meeting 3 July 2008; 78th meeting 30 July 2008)

  An ujrah-based credit card is permissible if the fee buys real services, and not if the fee is charged for the loan itself, for deferring the debt, or for exchanging cash at a different value.

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

  A fee calculated as a percentage of the credit limit is not permissible; the fee must be a fixed amount not tied to the credit limit, to avoid riba.

  Read the source

What to watch for

• Ask whether the fee changes with your credit limit. If a higher limit costs more per month, at least one major regulator has ruled that structure out.
• Ask whether the fee changes with your outstanding balance. It should not.
• A fee stated as 'up to X% per month' is a warning sign; a fee stated as a fixed ringgit, dirham or rupiah amount is easier to check.
• Compare the annual fee against what a conventional card would have cost you in interest at your normal spending. On some ujrah cards the fee is the larger number if you always pay in full.
• Bank Negara's SAC ruled that a cash-back rebate on the annual fee cannot be sold alongside an ujrah, though it may be given as a gift (hibah). If a card advertises cash back on its fee, ask which of the two it is.
• The fee and the late payment charge are separate. Paying the fee does not buy you the right to pay late.

Cards built on Ujrah

52 cards across 6 markets.

Sources

• AAOIFI, Shariah Standards, 2015 English edition, Shariah Standard No. (2), issued 27 Safar 1421 AH / 31 May 2000. Full text downloaded from aaoifi.com.
• Bank Negara Malaysia, Shariah Resolutions in Islamic Finance, 2nd edition (2010), English, items 90, 91, 92, 93.