An Islamic credit card is a deferred-payment card whose issuer earns through fixed fees, a trading margin or a commission taken from merchants, without ever charging interest on any balance the cardholder carries over to a later month.
Why conventional revolving credit is a problem
On a conventional card, any balance unpaid at the due date generates interest that grows over time and compounds. That is precisely the riba of debts. A compliant card must therefore make its cost independent of how long the debt remains outstanding.
The Ujrah model: a subscription instead of interest
The issuer charges fixed monthly or annual fees in return for the services the card provides, whatever amount is used. To avoid disguised interest, these fees must not rise with the balance carried; some issuers tier them according to the credit limit granted.
Tawarruq to fund the credit line
The bank sells the client a commodity, often a metal, payable later with a margin, then has it resold for cash on the client's behalf. The proceeds fund the card limit. AAOIFI accepts this structure under strict conditions, though some scholars criticise it.
Why Bai Inah splits Sharia boards
In Inah, the bank sells an asset to the client on deferred terms and immediately buys it back for less, in cash. The structure has been used in some Southeast Asian markets, but AAOIFI and most Gulf boards reject it as a disguised usurious loan.
Kafalah: the bank guarantees your purchases
In another model, the issuer acts as guarantor to the merchant on the cardholder's behalf. Because charging directly for a guarantee is disputed, it is often replaced by service fees covering administration, the payment network and the card's benefits.
What the AAOIFI standard says about cards
AAOIFI's Sharia standard on debit, charge and credit cards accepts membership and renewal fees, as well as the commission collected from merchants. It does, however, forbid any interest that depends on the balance being carried forward.
Late payment: a penalty the bank does not keep
If a due date is missed, the contract may contain a cardholder undertaking to pay an amount to charity. The issuer keeps at most its actual collection costs. A penalty that grows over time and is retained by the bank would be riba.
Withdrawing cash at an ATM with the card
A cash advance becomes a Qard loan, on which no surplus may be required. The issuer may only charge a withdrawal fee matching its actual cost, unrelated to the amount or the duration. Some issuers restrict withdrawals heavily.
Filtering merchants by category code
Payment networks assign every merchant a category code. Islamic issuers use these codes to block payments at alcohol outlets, casinos and gambling websites, although filtering remains imperfect for shops selling a mix of permitted and prohibited goods.
Reward points, cashback and travel insurance
Benefits funded by the issuer are generally accepted because they are not linked to a carried balance. Any travel insurance attached should be Takaful, however, and partners in points programmes should not be engaged in prohibited activities.
Debit or charge card: a simpler alternative
For anyone wishing to avoid credit altogether, a debit card linked to a current account settles each purchase from existing funds. A charge card repaid in full every month raises no riba question either, provided no balance can be carried over.
Before applying for a halal card
Compare the total annual cost at a realistic level of use, identify the underlying contract, check how late payment and withdrawals are handled, review the list of blocked categories and ask for the fatwa of the Sharia board that approved the card.
Specialist external source
IFSB standards set the risk management, capital and disclosure requirements that apply to Islamic banks offering retail financing products such as cards.