Contract structure
The bank acts as your agent, paying the shops on your behalf, and charges you an agency fee.
Wakalah means agency. You appoint someone to act for you and you may pay them for doing it. On a card, the argument is that the bank is your agent for settling with merchants: you buy, the bank pays on your instruction, you reimburse the bank and pay it a fee for the errand. It is an intuitive description of what a card does. It is also the structure that one major regulator examined and found wanting, which makes it unusually well documented.
Illustrative figures, not a real product. You buy RM 800 of goods. As your agent the bank settles RM 800 with the merchant's bank through the card scheme. You reimburse RM 800 and pay an agency fee. If that fee were, say, 0.7% of your RM 10,000 credit limit each month, you would pay RM 70 a month whether you spent RM 800 or RM 8,000. Bank Negara's Shariah Advisory Council looked at exactly that design and rejected the pricing method: the fee must be a fixed amount, not a percentage of the limit.
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.
Agency for a fee is permitted and is covered by AAOIFI Shariah Standard No. 23. On its face, settling a payment on a customer's instruction is a service that an agent can be paid for, and DSN-MUI's fatwa uses closely related reasoning when it allows the issuer to take a merchant fee as ujrah for acting as intermediary (samsarah), for marketing (taswiq) and for debt collection (tahsil al-dayn).
Bank Negara Malaysia's Shariah Advisory Council examined a wakalah and kafalah card at its 78th meeting on 30 July 2008 and made three findings against it. First, 'the fiqh adaptation (takyif fiqhi) of ujrah on wakalah in the proposed credit card structure is not accurate', because the bank's role as agent is confined to settling payment to merchants whereas in reality it provides other services too. Second, setting the fee as a percentage of the credit limit 'is not in line with the Shariah and contradicts the decision of majority Shariah advisors at the international level'. Third, the fee 'shall be a fixed amount without being tied to a credit limit in order to avoid the element of riba'. The SAC also warned that pricing off the credit limit raises the issue of a conditional benefit on a loan. Separately, AAOIFI Shariah Standard No. 5 clause 2/2/2 prohibits combining agency and personal guarantee in one contract at the same time, which is a direct problem for a card that layers wakalah on top of kafalah.
Agency is covered by Shariah Standard No. 23. AAOIFI does not use a wakalah analysis for cards in Standard No. 2. Standard No. 5 clause 2/2/2 warns that combining agency and personal guarantee in one contract at the same time 'conflicts with the nature of these contracts'.
Bank Negara Malaysia Shariah Advisory Council · Shariah Resolutions in Islamic Finance, 2nd edition, item 93 (78th meeting, 30 July 2008)
The fiqh characterisation of an agency fee on a card was found inaccurate; a fee set as a percentage of the credit limit was ruled out; the fee must be a fixed amount not tied to the credit limit.
Read the sourceAAOIFI · Shariah Standard No. (5), Guarantees, clause 2/2/2
Agency and personal guarantee may not be combined in one contract at the same time, because the combination conflicts with the nature of both contracts.
Read the sourceAAOIFI · Shariah Standard No. (23), Agency and the Act of an Uncommissioned Agent (Fodooli)
Sets the general rules for agency, including that an agent may be paid for the agency.
Read the source9 cards across 2 markets.
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This explains the mechanism, not the ruling