Shariah Card

 

What is a Credit Card?

 

A Credit Card Definition According to the AAOIFI standard is as follows:

 

1. A Credit card is a revolving credit facility within the credit limit and credit period is determined by the issuer of the card.  It is also a mean of payment.

2. The holder of the credit card is able to pay for purchases of goods and services and to withdraw cash, within the approve credit limit.

3. When purchasing goods and services, the card holder is given a free credit period, during which the amount due should be paid and no. interest is chargeable. The cardholder is also allowed to defer paying the amount due and is charged interest for the duration of the credit. In the case of withdrawal, there is no free credit period.

 

 What is a shariah card?

 

A shariah card is similar to the conventional credit card except it is not permissible for an Islamic  institution to issue credit card that provide interest-bearing revolving credit facility, whereby the cardholder pays interest for being allowed to pay off the debts in installment. If the institution obliges the cardholder to deposit a sum of money as a guarantee and this amount is not available for the use of the card holder, then it must be made clear that the institution will invest the money for the benefit of the cardholder on the basis of mudharabah and that any profit accruing on this amount will be shared between card holder and the institution according to a specific percentage. The institution must stipulate that the cardholder may not use the card for purposes prohibited by the shariah and that the institution has the right to withdraw the card in case such a condition is violated.

 

 AAOIFI standard rulings on shariah card:

 

1. It is permissible for institution to join the membership of international credit card regulatory organizations, provided the institutions avoid any infringements of shariah that may be prescribed by those organizations.

2. It is permissible for the institution to pay membership fees, service charges and other fees t international credit card regulatory organizations, so long as these do not include interest payment, even in an indirect way, such as in the case of increasing the service charge to cater for the granted credit.

3. It is permissible for the institution issuing the credit card to charge a commission to the party accepting the credit card, at a percentage of the purchase price of the items and services purchased using the card.

4. It is permissible for the institution issuing the credit card to charge the cardholder membership fees, renewal fees and replacement fees.

5. It is permissible for the cardholder to withdraw an amount of cash within the limit of his available funds, or more with the agreement of the institution issuing the card, provided no interest is charged.

6. It is permissible for the institution issuing the credit card to charge a flat service fee for cash withdrawal, proportionate to the service offered, but not a fee that varies with the amount withdrawn.

7. It is not permissible for institution to grant the cardholder privileges prohibited by the shariah, such as conventional life insurance, entrance to prohibited places or prohibited gifts.

8. It is permissible to grant privileges to the card holder that are not prohibited by the shariah, such as priority right to services or discounts on hotel, airline or restaurant reservations and the like.

 

 Dewan Shariah Nasional Indonesia’s Ruling on Shariah card

 

A demand of shariah cards is increasing in numbers day after day, there is a great curiosity of this new products feature among the Indonesian Muslims ummah. In order to understand more about Shariah Card, let us have a look of the Fatwa concerning   shariah card  issued by Dewan Syariah Nasional (DSN)–Indonesia National Shariah Board- the highest authority of controlling and monitoring of Islamic Finance Institution daily operations.

 

FATWA
DEWAN SYARI'AH NASIONAL
NO: 54/DSN-MUI/X/2006
In the matter of
SHARIAH CARD

 

The details of fatwa of DSN – Dewan Syariah Nasional concerning Shariah Credit Card:

 

First: The General Rules

In this Fatwa, the meaning of Shariah Card

 

1.                  Shariah Card has the same function with credit card that has a lawful         relationship a between parties in any established jurisdiction, based on the principles of shariah as directed in this fatwa.

2.                  The parties involved are the card issuer (mushdir al-bithaqah), card holder (hamil al-bithaqah) and card acceptance/merchant (tajir or qabil a-bithaqah).
3. Membership fee (rusum al-‘udhwiyah) is the payment for using the services of card issuer.

4. Merchant fee – refers to the fee that is given by the merchant to the card issuer as the payment (ujrah) of being the agent service (samsarah), marketing (taswiq) and billing payment (tahsil al-dayn).

5. Cash withdrawal fee is the payment for using the facility of cashwithdrawal (rusum sahb al-nuqud).

6. Ta’widh is compensation payment for the card issuer resulting from card holder late payment.

7. The late charge fee is the late payment cost to be charged to the cardholder which will be given to charity.

 

Second: The Ruling

 

Shariah Credit Card is permissible as accordance to this Fatwa.

Third: The Rules of aqad

 

The Shariah Principles of credit card contracts are:

a. Kafalah; the card issuer is the guarantor (kafil) for the cardholder on behalf of the merchant for all the liability (dayn) that occurred as a result of the transactions between the cardholder and the merchant, and or cash withdrawal from other Banks or ATM (not from the bank or ATM of the card issuer) On this guarantee agreement, card issuer will receive a fee (kafalah bi ujrah).

b.Qardh; in this case cardholder acts as the lender (muqridh) to the card holder (muqtaridh) through the cash withdrawal from the Bank or ATM of the card issuer.

c.Ijarah; in this matter the card issuer is the service provider of payment system and services to the cardholder, for these services, cardholder is required to pay a certain amount of membership fee.

 

Fourth: The Ruling on shariah credit card limitation (Dhawabith wa Hudud)

 

a.                   No interest bearing.

b.                  Not to be used for non-shariah compliance transactions.

c.                   Will not be encouraged for over spending (israf), by setting - up a credit limit.

d .     The main cardholder must have the financial capability to pay his obligation in           timely manner.

d.                  Do not render to non-shariah compliance facility.

 

Fifth: The Ruling on Fee

 

a. Card issuer is entitled to receive membership fee (rusum al-udhwiyah) including cardholder membership renewal fee as a service payment (ujrah) from the cardholder for the permissibility of render the card facility.

b. Merchant fee- card issuer is permissible to receive any fee derived from the object price of the transactions or services as a wage (ujrah) being the mediator (samsarah), marketing (taswiq) and billing collection (tahsil-al-dayn)

c. Cash withdrawal fee- card issuer is permissible to receive a certain amount of fee from cardholder withdrawal (rusum sahb-al-nuqud) as an income for the service of using this facility and the amount should be fixed, not depend upon the amount of withdrawal.

d. Kafalah fee- card issuer is permissible to received fee on kafalah/guarantee agreement frrom the card holder.

e. All method of payments mentioned above point a, b, c and d is determined up front during the applying for the card in transparency and fixed in term, except for the merchant fee.

 

Sixth: The Ruling on Ta’widh and Penalty Payment

 

a. Ta’widh – Penalty - card issuer is permissible to charge ta’widh a penalty payment, which is the compensation from the expenses incurred by the card issuer resulting from the card holder late payment on due date.

b. The late charge- card issuer is permissible to charge late payment fee which will be entirely will be given to charity.

Seventh: The Closing Rules

 

1. In any case that one of the parties is failed to fulfill their obligations or there is a dispute between them, the dispute settlement will be done thorough Shariah Arbitration Institution or the Shariah court, only if the negotiation process is a deadlock.

2. This fatwa is valid since the date of its endorsement and if in the future there are some errors to be found, this fatwa will be altered and rectified accordingly.

Jakarta, 18 Ramadhan 1427 H / 11 October 2006 M

 

 

Reference:

1.      AAOIFI shariah standard - characteristic and rulings of shariah credit card.

2.      Fatwa DSN MUI No 54/DSN-MUI/X/ 2006