The Shariah-compliant credit card is issued as interest-free by an Islamic Financial institution. When this credit card is used to purchase goods or services, the Islamic bank will render the transaction on the customer’s behalf whilst simultaneously selling it back to them. The credit card is payable over a deferred period of time via installments.
Types of Arrangements
Ujrah-based Credit Card
It is based on the Islamic principle of Qard Al-Hassan (benevolent loans). The credit amount lent as Qard is repaid by the customer in installments with premium.
Tawarruq-based Credit Card
The amount equal to the total Murabaha profit paid by the customer is spread over the term of the Murabaha agreement on a monthly basis. The customer pays the cost price to the bank at the end of the agreement which coincides with the credit card’s expiry date