The Benefits of Using an Islamic Credit Card for Muslim Consumers

zakir abbas
5 min readMar 13, 2023

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Islamic credit cards adhere to the principles of Sharia law, which forbids the charging or payment of interest (riba). Instead of charging interest, Islamic credit cards use a profit-sharing model. In this model, the cardholder and the card issuer share the benefits and risks of the transactions made with the card.

Muslim consumers choose to avoid interest-based transactions and at the same time want to adhere to the rules of Sharia law in their financial dealings. They are becoming more and more familiar with Islamic credit cards. In the next section, we’ll discuss how Islamic credit cards work and their features.

How Do Islamic Credit Cards Work?

Islamic credit cards work on the principle of profit-sharing. In another sense, there is risk sharing between the card issuer and the cardholder. The card issuer invests the funds deposited by the cardholder in a sharia-compliant investment or business venture. The card issuer shares the profits generated from these investments with the cardholder.

The card issuer may also charge an annual fee for using the card. But this fee must be reasonable and not exceed the actual cost of providing the card.

Tawarruq: The Concept of Islamic Credit Cards

Tawarruq is a financing structure used in Islamic banking. It involves the purchase of an asset by a customer using a deferred payment plan. The asset is then sold to a third party for cash, to pay off the original purchase price. The customer then pays back the cash to the bank in installments along with an agreed-upon profit margin.

In the context of Islamic credit cards, Tawarruq is a method of financing the card’s outstanding balance. The bank purchases an asset (e.g., a commodity) on behalf of the cardholder using a deferred payment plan. The asset is then sold to a third party for cash, which is used to pay off the card’s balance.

Tawarruq is seen as a permissible alternative to conventional loans. Conventional loans involve interest (riba). Whereas Tawarruq involves the actual sale and purchase of an asset rather than an exchange of money with interest. However, there is some debate among Islamic scholars regarding the permissibility of Tawarruq. It can involve complex transactions that may not completely align with Islamic principles of finance.

Features of Islamic Credit Cards

Islamic credit cards come with a range of features that meet the needs of Muslim consumers. Some of the key features include:

Sharia-compliant transactions: All transactions made using Islamic credit cards are sharia-compliant. They do not involve any interest charges (riba).

Cashback rewards: Islamic credit cards offer cashback rewards, which are determined by the eligible purchases the cardholder makes. These rewards depend on a profit-sharing model and are shared between the card issuer and the cardholder.

Halal travel benefits: Islamic credit cards offer a range of halal travel benefits, including access to halal food, prayer rooms, and other services that comply with Islamic principles.

Charity donations: Some Islamic credit cards allow cardholders to donate a portion of their rewards to a charity of their choice.

Free of riba: As per Islamic law, Islamic credit cards are free from riba, which is a major sin in Islam.

Advantages of Islamic Credit Cards over Conventional Credit Cards

There are several advantages to Islamic credit cards over conventional credit cards. Some of these advantages include:

Sharia-compliant: Islamic credit cards are sharia-compliant and do not involve any interest charges (riba). which is haram (forbidden) in Islam.

Profit-sharing model: Islamic credit cards operate on a profit-sharing model, where the card issuer and the cardholder share the profits and risks of the transactions made using the card.

Halal travel benefits: Islamic credit cards offer a range of halal travel benefits, including access to halal food, prayer rooms, and other services that comply with Islamic principles.

Charitable donations: Some Islamic credit cards allow cardholders to donate a portion of their rewards to a charity of their choice.

No hidden charges: Islamic credit cards do not have any hidden charges or fees that may surprise the cardholder.

FAQs

Q: Are Islamic credit cards available in all countries?

A: Islamic credit cards are not available in all countries. But, many countries, including the UK, Malaysia, the UAE, and Saudi Arabia, offer Islamic credit cards to their Muslim consumers.

Q: Can non-Muslims apply for Islamic credit cards?

A: Yes, non-Muslims can apply for Islamic credit cards. But they must agree to follow the sharia principles and terms and conditions of the card.

Q: Are Islamic credit cards more expensive than conventional credit cards?

A: Islamic credit cards may have higher annual fees compared to conventional credit cards. Yet, they do not charge any interest or penalty fees, which can make them more affordable in the long run.

Q: Do Islamic credit cards offer rewards and cashback?

A: Yes, Islamic credit cards offer rewards and cashback on eligible purchases made using the card. The rewards rest on a profit-sharing model and are shared between the card issuer and the cardholder.

Conclusion

Islamic credit cards are a sharia-compliant financial option. It provides Muslim customers with some distinct advantages and features associated with them. The card issuer and cardholder split the rewards and risks. Based on the transactions performed with the card under their profit-sharing business model. Islamic credit cards are becoming more and more popular among Muslims. Who desire to conduct their financial transactions under the tenets of Sharia law. Islamic credit cards provide a special financial solution for Muslim consumers around the world. The Islamic credit card has a variety of features, such as halal travel advantages, cashback rewards, and charitable donations.

Originally published at https://www.ssaazs.com.

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zakir abbas

I am an ex-professor of Bahria University Karachi. My specialty is Finance, Portfolio Management, Investment Banking; Commercial Banking, Economics.