Do you know how secured the credit cards are as Sharia'h conceptualize it, Read what alternatives are there for the customers!

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Unsecured Installment Credit Cards
by
Dr. Mohammad ÑAlÊ Elgari ibn Eid
Centre of Islamic Economic Research
King ÑAbdul-Aziz University, Jeddah
From:
Majallat MajmaÑ al-Fiqh al-IslÉmÊ
(Journal of the Islamic Fiqh Academy of the OIC)
Session 15, Vol. 3, pp. 95-112

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In the Name of Allah, the Beneficent, the Merciful
Praise be to Allah alone, and peace and blessings upon our master, Muhammad, and upon his
family and companions.
1- PREFACE
Credit cards have become widespread, and people today are familiar with their various forms and
how they work, so there is no need to explain them at length, particularly since the topic of credit
cards has already been discussed in previous Fiqh Academy sessions and numerous studies have
been written about them. That is why I will limit my study to the core issues, considering this as
a complement to what has already been done in this field. I will discuss three basic issues:
First: the conceptualization of credit cards in fiqh, which is the preliminary requirement for
passing judgment upon them.
Second: the issue of fees on credit cards.
Third: Islamic credit cards that have issued recently by some banks.
2- TYPES OF CREDIT CARDS
For the purposes of this study, we can divide credit cards into two types: secured and unsecured
credit cards. Unsecured credit cards can be subdivided into single-payment credit cards and
installment credit cards.
We will define each of these types; then we will discuss the unsecured installment credit card,
which is the topic of this paper.
3- SECURED CREDIT CARDS
What is meant by a secured credit card is a card that the bank issues on the condition that the
client must deposit in his account an amount equal to the maximum allowed limit for using the
card, and the bank reserves the amount in the account as long as the card is valid. When the bank
receives invoices from merchants (after the customer has used the card), it withdraws the due
amount from the client’s account and pays it to them. The bank obtains customary fees for
issuing the cards and renewing them, as well as a fee deducted from the merchants’ invoices.

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Some distinguished contemporary scholars have taken the view that the [fiqhi] basis of this credit
card is a ÍawÉlah contract. This is because when the client uses the credit card and incurs a debt,
he refers his creditor (the merchant) to the bank (which is, in turn, indebted to the client since the
client has deposited an amount equal to or more than what the creditor is demanding). What they
say is true; however, there is also an element of guarantee (kafÉlah) involved because the bank is
committed to pay the due amount to the merchants, whether the amount in the client’s account is
enough or not.
Someone might ask: why would the need for a guarantee ever arise when the deposited amount
covers the maximum credit limit? The answer is that this eventuality sometimes happens when
the client’s use of the credit card exceeds the amount he has in his account due to an
accumulation of repeated small purchases (because small purchases do not require the merchant
to get permission from the bank), or sometimes the [purchase occurs] in a place where it is
difficult to contact the bank (for example, on a plane). In these circumstances, the bank will not
refuse to pay the amount due to the merchants by virtue of the agreement governing the issuance
of the card. That indicates the presence of the element of guarantee at all times.
The Islamic banks issue this type of credit card, based on the permission of their SharÊÑah
advisory boards, which do not see any objection to it from a SharÊÑah aspect. It appears to them
that it is no more than a new form of ÍawÉlah and that they resemble checks. This type of credit
card represents less than 25% of all the credit cards in the world. Thus, it is not as important as
the second type; i.e., unsecured credit cards.
4. UNSECURED CREDIT CARDS
What is meant by unsecured credit cards are the type based upon the concept of guarantee
(kafÉlah). In issuing the card, the bank adds its own financial liability to the financial liability of
the client carrying the credit card. The client purchases an item from commercial outlets that
accept the card for a delayed payment, and he owes a debt as a result. The merchants then submit
their payment demands to the credit card issuer, considering him the client’s guarantor. The bank
will pay the respective amounts and then charge the cardholder. This is the form of financial
guarantee that is mentioned by Muslim jurists. This unsecured credit card can be divided into
two types:
1. single-payment unsecured credit cards
2. installment unsecured credit cards.

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5. SINGLE-PAYMENT UNSECURED CREDIT CARDS
Single-payment unsecured credit cards are famously known as “charge cards” and are based on
the guarantee concept, as previously mentioned. The issuing bank does not require the
cardholder to deposit a ready amount as they do with secured credit cards. When the client uses
the credit card, the bank, [in its capacity] as the credit card guarantor, will pay the commercial
outlets and later charge the credit card holder the amount due. When using this type of credit
card, the amount due must be paid in one payment, usually within three weeks. If not paid within
three weeks, it means the cardholder has breached the terms on which the card was issued.
Consequently, his membership would be cancelled, the credit card withdrawn, and he would be
required to pay the amount due plus an additional fine. (Islamic banks spend this fine in charity.)
It is clear that this credit card is based on the concept of financial guarantee.
This credit card differs from the previous one in the sense that it enables the cardholder to
purchase goods without having to possess the funds to cover them. However, this card is not very
significant in the credit card world as it does not allow the cardholder to pay the amount due by
installments over a period of months. This means that the benefits obtained from the credit
provided by the bank are limited. Also, banks usually hesitate to issue this credit card due to the
great risks and low returns associated with its issuance. The bank does not receive any additional
money in return for a delay of payment by the client, [as opposed to] what happens with
unsecured credit cards paid by installments.
6. UNSECURED CREDIT CARDS PAID BY INSTALLMENTS
When people mention credit cards, they generally mean this type. Unsecured credit cards paid by
installments represent almost 80% of the credit cards used by people, although the amount
differs between countries. The advantages of this credit card are that the bank issues it without
requiring the deposit of any cash amount in the client’s account (it is unsecured), and at the same
it enables the client to pay the due amount in installments of his choice. The client is only
required to pay a minimal amount each month, not more than five percent of the total debt. The
rest of it revolves on a monthly basis. It means the bank’s monthly claim is limited to the 5%,
and the remaining 95% is considered as a renewed loan for a period of one month. The client is
charged monthly interest as long as he has a debt. The client has the right to use the credit card
continuously until the amount he owes reaches the maximum level allowed by the bank.
The bank interest on credit card operations is much more than on loans; therefore, banks issuing
credit cards consider them one of their most important sources of income.

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7- THE FIQH CONCEPTUALIZATION OF ALL TYPES OF CREDIT CARDS:
This writer and a group [of scholars] interested in the topic of credit cards have reached the
conclusion that the true nature of a credit card is a guarantee of debt. The issuer is a guarantor
(kafÊl), the client is the one guaranteed (makfËl), and the merchant who accepts the credit card is
the guarantee beneficiary (makfËl lahu). When the credit card holder uses his credit card to
purchase an item, rent a car, stay in a hotel, etc., he becomes a debtor and the bank becomes a
guarantor. It is known [in fiqh] that a guarantee (kafÉlah) means joining one liability to another.
The merchants have the option to claim from either the bank or the client, but they usually claim
from the guarantor, i.e., the bank. A debt guarantee is permissible, as mentioned in al-MughnÊ:
“Consensus exists among Muslims that guarantees are permissible in general.” The guarantee in
a credit card is a guarantee before the obligation is incurred. It is as if the bank is saying to the
merchants, “Deal with the card holder and I will guarantee the value of the transaction,” and this
form of guarantee is permissible according to the majority of scholars. Al-MardÉwÊ said in al-
InÎÉf, “If a person says: ‘I will guarantee you what so-and-so owes you or what he will borrow
from you,’ it is lawful.” QÉÌÊ ÑAbd al-WahhÉb said in al-MaÑËnah, “If a person says to another:
‘Lend so-and-so money and I will be the guarantor,’ this is permissible. [In that case] he would
be obliged for an amount comparable to what [the lender] would lend a person of similar
circumstances.”
In a credit card, the amount of the guarantee is known, not unknown. This is because the bank
determines a maximum limit for the cardholder that the cardholder must not exceed. Someone
might say that the bank guarantees all the merchants’ claims in all situations, which indicates that
it is a guarantee for an unknown amount. The response is that a guarantee is also permissible for
an unknown amount. It is mentioned in al-KÉfÊ fÊ Fiqh al-ImÉm AÍmad, “A guarantee is valid for
both known and unknown amounts, both before and after the debt is incurred, based upon the
statement of Allah, ‘…For him who produces it is [the reward of] a camel load, and I guarantee
it’ [SËrah YËsuf: 72].” QÉÌÊ ÑAbd al-WahhÉb said in al-MaÑËnah, “It is valid for known and
unknown amounts.” We have previously replied to those who said that the transaction is a
transfer of liability rather than a guarantee.
8- CREDIT CARD FEES
The bank issuing the credit card generates revenue from three sources:
a) First source - the fees paid by the credit card holder upon the issuance and renewal of
the card. The fees vary according to the type of card, such as a gold or silver card. They
may also be pegged to the number of times the card is used, or some other criterion. At
any rate, they remain an annual or monthly payment.

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b) Second source - the discount taken by the credit card issuer from the merchant’s invoice.
When the merchant sells an item costing RS100 to a cardholder, he gets only RS97 from
the bank (the percentage differs from one credit card to another), whereas the bank
charges the customer the full amount (i.e., RS100).
c) Third Source – It is the addition to the debt in consideration of the added period of the
debt in unsecured installment credit cards, as previously mentioned.
This third income source is pure usury, so there is no need to elaborate upon it; rather,
our discussion will be limited to the first and second types.
9 – THE FEES OF THE FIRST TYPE
There is no SharÊÑah problem with charging fees for issuing or renewing or the like [for those]
scholars who look at it as brokerage or a fee for agency, etc. However, if we say that the credit
card is based upon the concept of guarantee (kafÉlah), then most of the fees (i.e., those above the
actual expense of the service) would seem to be compensation for the guarantee, and there is a
problem with that.
Originally, the guarantee was an act of prestigious persons as a means of donating to the needy.
It is permissible if it is donation and not allowed if it involves a fee. Contemporary jurists
disagree on the issue of charging a fee for a guarantee. Three opinions exist on it.
a) The First Opinion – A fee for a guarantee is not permissible. This view follows the
opinion of the majority of classical scholars (the Salaf); some even say that it is a matter
of consensus (ijmÉÑ). Ibn al-Mundhir reported that, saying, “All whose opinions have
been recorded say that a commission for a guarantee is not lawful and not permissible.”
b) The Second Opinion – A fee for a guarantee is permissible without any qualifications.
Adherents of this view base it upon the claim that the prohibition is entirely a result of
ijtihÉd by classical jurists and is not based on any text. They say there is nothing in the
Book of Allah or the Sunnah of His Messenger (peace be upon him) prohibiting a fee for
a guarantee. They consider a guarantee like other types of contracts in people’s lives,
which developed from being voluntary acts and became exchange contracts due to the
predominant benefit involved in that [transformation]. Other examples of this are
teaching the Qur’Én and leading Muslims in prayer, and people’s need for guarantees is
well known today. Dr. NazÊh ×ammÉd is one of the most well known proponents and
defenders of this view.
c) The Third Opinion – It is an intermediary position between the two [previous] views. It
does not ignore the contemporary needs of people and [the fact] that the guarantee is a

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type of transaction (muÑÉmalah) and that the basic rule for that is permissibility.
Voluntary guarantees are not possible today because people need guarantees for
commercial purposes. That is why these scholars allow a fee for a guarantee due to need
(ÍÉjah). However, they also accommodate the opinion of classical scholars that a fee for
a guarantee is forbidden. They do so by identifying the effective reason for the
prohibition to be the suspicion of ribÉ, and that will not happen unless the guarantee ends
in debt, the guarantor pays the debt, and then charges the person guaranteed the full
amount with an additional charge for the guarantee. This is a loan with interest,
containing the suspicion of usury. In most transactions involving guarantees, people
benefit from them without the guarantee turning into debt between the guarantor and the
debtor. That only occurs rarely, and rare events are not given consideration in rulings.
Therefore, [these scholars] allow a fee for a guarantee on the condition that the fee is
returned to the guaranteed in case the guarantor pays the debt and then demands
reimbursement from the debtor. This avoids the suspicion of usury by removing the
increment.
It is obvious that when there is no counter-value for the fee obtained by the credit card
issuer other than the guarantee, it is of the second type.1
It is a fee taken for a guarantee.
For those who allow a fee for a guarantee, this would be lawful. However, proponents of
the first and third views would not allow a fee to be taken unless it is compensation for
specific tasks or the expenses of printing, posting, etc.
10- THE DISCOUNT TAKEN BY THE CREDIT CARD ISSUER FROM THE
MERCHANT’S INVOICE
This is considered an important source of income for the credit card issuer. The bank
deducts from the invoice and retains for itself a known percentage (ranging from one to
five percent) that is agreed to [by the merchant]. For example, when an invoice for RS
100 is received, the bank pays only RS 95 to the merchant while charging the card holder
the full RS 100. The ×anafÊ scholars state in their books that such a [fee] in a guarantee is
permissible. We have found no statements from other [scholars] regarding this issue. The
guarantor, according to the ×anafÊ scholars, is allowed to refer to the guaranteed party for
reimbursement of what he guaranteed, not what he actually paid, under his instructions.
Their proof for this position is that when the guarantor pays the debt to the creditor, the
guarantor becomes the owner of the debt that had been the liability of the debtor.
Therefore, he has the right to claim reimbursement for it in full, even if he paid a lower
1
Editor’s note: The author seems to be referring to the distinction between cards whose underlying structure is
kafÉlah as opposed to ÍawÉlah.

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amount to the creditor because [the latter] accepted it and relinquished his claim against
the debtor. Here are the statements of ×anafÊ scholars from their books:-
a) al-Durr al-MukhtÉr:
(If a person is guaranteed by his own request)―i.e., on the condition that he says,
“…on my behalf..” or “…on the condition that it will be a debt I owe [you]”, and the
person is not underage or a slave and thus interdicted [from full legal capacity]―Ibn
Malik said: [The guarantor] may claim reimbursement from him (for what he paid) if
he paid the guaranteed amount; otherwise, he may claim it for [the amount] he
guaranteed. When he paid [the debt], he became its possessor, and thus he is similar
to the [original] claimant. That would be similar [to his position] if he became its
owner by means of a gift or inheritance. (But if [someone pays the debt] without [the
debtor’s] request, he cannot claim reimbursement [from him]) because he paid
voluntarily, unless [the debtor] accepts [responsibility] at the time he is informed, in
which case [the guarantor] may claim reimbursement for what he paid.2
b) Al-HidÉyah: SharÍ al-BidÉyah
If a person stands surety [for another] by [the latter’s] request, he can claim
reimbursement for what he paid because he paid the debt upon his request. And if he
stands surety for him without his request, he cannot claim what he has paid because
he is a volunteer. [The author’s] statement “claim reimbursement for what he paid”
means if he paid what he guaranteed. However, if he pays other than what he
guaranteed, he is reimbursed for what he guaranteed. That is because he becomes
owner of the debt by paying it [and thus] is in the same position as the [original]
creditor. This is like if he were to become owner of the debt by endowment or by
inheritance, or like if the muÍÉl Ñalayhi [the debtor to whom the assignor transfers his
debt] becomes owner of the debt, as we have mentioned in the chapter on ÍiwÉlah
[transfer of debt]. This is not the case if he is requested to pay a debt [after it has
come due], in which case he is reimbursed only for what he pays because [the debtor]
has no obligation toward him until he owns the debt [by paying it]. It also differs
from the case of the guarantor reaching an agreement with the creditor for [payment
of] 500 [dirhams] out of 1000 because [the creditor] is foregoing [part of] his right,
and it is similar to the creditor absolving the guarantor [altogether].3
2
Al-Durr al-MukhtÉr, 5:314.
3
Al-HidÉyah, SharÍ al-BidÉyah, 3:91.

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c) TuÍfat al-FuqahÉ’
The guarantor is reimbursed for what he has guaranteed, not for what he has paid,
since the guarantor becomes the owner of the liability of the debtor. If debtor owes
high quality dirhams to the creditor, but the guarantor pays low quality dirhams and
the creditor agrees to it, the guarantor can claim reimbursement of high quality
dirhams from the debtor. Similarly, if he pays in goods or in commodities sold by
weight or volume, he can claim reimbursement in dirhams. [This] is unlike one who
is nominated to pay the debt on behalf of the principal; he is reimbursed only what he
has paid, not what the debtor owes. It also differs from conciliation if he reconciles on
five hundred out of a thousand; he can seek reimbursement of only five hundred, not
a thousand, because the creditor waived a portion.4
d) FatÍ al-QadÊr
His statement “he is reimbursed what he has paid” means if he pays what he has
guaranteed. However, if he pays other than what he has guaranteed, still he is
reimbursed what he has guaranteed. If the debt was in low quality [dirhams] but he
pays in high quality, he can only claim low quality; or if the debt was in high quality
but he pays in low quality, he can claim reimbursement of high quality, unlike the
case of one who is requested [to pay a debt after it has come due].5
e) Al-FurËq by al-KarÉbÊsÊ
However, the guarantee is not like [the case of a business partner who is asked to pay
a loan on behalf of his partner] because the guarantor is reimbursed for what he
becomes the owner of, not for what he pays. The justification for this is that the
guarantor becomes liable for the wealth he guarantees; thus, he acquires the right of
compensation for it. Another proof is that if [the creditor] were to make a gift to [the
guarantor] of nine hundred and take possession of one hundred, [the guarantor] can
claim reimbursement [from the debtor] for what he has guaranteed, i.e. one thousand.
It is proved, then, that the guarantor is reimbursed for what he owns. He becomes the
owner of a thousand due to his guarantee, which is why he should be reimbursed the
same, as in the case that he pays less than the [full] weight…6
4
TuÍfat al-FuqahÉ’, 3:240.
5
FatÍ al-QadÊr, 7:189.
6
Al-KarÉbÊsÊ, al-FurËq, 2:244.

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f) Al-BaÍr al-RÉ’Êq; Chapter: Guarantee
If the guarantor pays differently―for instance, if the guaranteed [debt] was in high
quality but he pays in low quality, or vice versa―he is reimbursed what he has
guaranteed, not what he has paid, because the guarantor becomes the owner of the
debt by paying it off and, thus, he becomes like the [original] claimant. This is like if
the guarantor comes to own [the debt] by way of inheritance or a gift. [This ruling]
cannot be refuted on the grounds that the guarantor [in this case] is made the owner of
the debt by a party other than the debtor.7
This is because our transfer of [ownership
of] the debt to [the guarantor] by means of the gift is [done] out of necessity. [The
creditor] could also transfer [debt ownership to the guarantor] through hiwÉlah8
or by
treating one debt like two. [This is] unlike the [case of] one who is requested to pay
the debt [after it is due], for he is reimbursed what he has paid if he pays by a lower
quality than the original debt, whereas if he pays by a better quality, he is reimbursed
only the original debt quality. This is because his entitlement to reimbursement is by
paying as per the [debtor’s] request. Therefore, he would not own [the debt] if [the
creditor] were to make a gift of it to him; thus, he would be reimbursed for what he
has paid as long as he does not go against [the debtor’s] request by paying more or by
paying in another type [of wealth than the original debt].
g) ×Éshiyat Ibn ÑÓbidÊn
His statement “if he pays what he has guaranteed”…and his statement “if he pays in
low quality”…the meaning of this text is that, if the guarantor pays what he has
guaranteed, he is not reimbursed for what he has paid but for what he has guaranteed;
for example, if he guarantees good quality [coinage] but pays in low quality, or vice
versa. His statement “since he becomes the owner of the debt by paying it…”, i.e., he
is reimbursed what he has guaranteed, not what he has paid, because his entitlement
to reimbursement is a legal effect of the guarantee; accordingly, he becomes the
owner of the debt by paying it, and hence, he steps into the role of the [original]
claimant. Therefore, he is reimbursed with the exact debt. It is as if the guarantor has
become the owner of the debt.
Al-IrshÉd: [It is] as if the claimant creditor has died and the guarantor is his heir; the
guarantor has a right only to the very [debt from the debtor]. Similarly, if the creditor
donates the debt to the guarantor, he will become its owner and can demand the very
7
Editor’s note: The difficulty the author addresses here would seem to be the irregularity involved in the creditor
giving away something that is not in his possession and which may never be possessed.
8
Editor’s note: This would seem to be in case the creditor owes a separate debt to the guarantor.

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same from the guaranteed debtor. The donation is valid even though the donation of
debt is valid only [when it is] from the one who is indebted, and the chosen opinion is
that the guarantor is not liable for the debt. This is because when the donor permits
the recipient [i.e., the guarantor] to take possession of what is owed, it is permissible
as an exception to the normal rule in order to facilitate matters in cases of necessity
(i.e., by invoking the legal principle of istiÍsÉn). In the present case, the contract of
guarantee gives him authority to take possession of it upon paying it, and this is
different from [the case of] the one requested to pay the debt [after it comes due].9
h) Al-FatÉwÉ al-Hindiyyah
In any case where the contract of guarantee is valid, if the guarantor pays what he has
guaranteed, he [may] seek reimbursement from the person guaranteed. However, he
cannot seek reimbursement before the payment. If he pays from himself, he is
reimbursed what he has guaranteed, not what he has paid.10
All this proves that the practice of discounting the amount from the merchant’s invoice is
acceptable according to the opinion of the ×anafÊs.
11- ISLAMIC CREDIT CARDS
The problem in unsecured credit cards paid by installments is obvious since they comprise
interest on debts. There is consensus on the prohibition of interest in the form [epitomised by the
statement,] “Extend the period for me and I will increase the amount I owe you”. Nevertheless,
these cards have become widespread, and they have become a nearly universal problem due to
people’s great need for debts paid by installments. This has prompted Islamic banks to actively
seek an alternative to unsecured credit cards that can be paid in installments and will be within
the scope of permissibility. These are what are called Islamic credit cards.
What is meant by Islamic credit cards are those new instruments developed by banks and
financial institutions that have the same features as conventional credit cards but with different
contractual instruments approved by the SharÊÑah supervisory boards and based on permissible
transactions.
The obvious fundamental problem in developing Islamic credit cards is how to make the debts
resulting from the use of those cards payable in installments; because this is what people need
9
×Éshiyat Ibn ÑÓbidÊn, 5:315.
10
Al-FatÉwÉ al-Hindiyyah, 3:266.

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and what prompts them to use conventional credit cards. Conventional cards are structured with
[the choice]: pay now or pay more later; what is called in banking lingo “revolving accounts”.
The widest use of such cards is as a way to get installment credit. The card holder will have a
means of payment available while travelling, or in case of emergencies, or during holiday
seasons, etc. that is no different from cash in its acceptance by merchants, hotels, hospitals, etc.
and is, thus, an alternative to cash payment. Sometimes only credit cards are accepted. The card
holder will then pay off in monthly installments the liability incurred from using the card. It may
take six months or a year or more or less [to pay off the debt]. The cards have proven to be
useful, and their use has become widespread among the public. The reason is that the majority of
card holders do not have enough cash available when needed, even if they are well off. They
might have stable incomes, like employees of governments or corporations or the like, and if
they are given the opportunity to pay in installments, they will pay on time in a manner
commensurate with their monthly incomes.
Many banks have issued cards that fulfill this need. Their SharÊÑah boards have approved them as
an alternative to unsecured [conventional] credit cards paid by installments. A few of them have
had great success, while some others failed to gain approval due to technical reasons or SharÊah
issues. We will discuss below the most important of these forms with a bit of detail.
12- CREDIT CARDS BASED ON ORGANIZED TAWARRUQ
A number of banks have issued Islamic credit cards with structures that have been approved by
their respective SharÊÑah boards. They work as follows:
a) The bank issues a charge card to its customer in the usual manner. A charge card, as is
well known, is a card that allows its holder to use it even though he does not have credit
in his account with the card issuer to pay the financial obligations that result from his use
of the card. However, the card holder promises to promptly pay the full monthly bill upon
receiving it from the bank or within a grace period that does not usually exceed one
month. He shall be punished and the card will be withdrawn if he does not pay on time or
delays, and his name will be blacklisted. This is what we called “a single payment card”.
b) What is new in this charge card is not its issuance in the manner explained earlier; rather,
the attachment with it of an agreement that includes an arrangement with the client to
execute tawarruq. Upon receipt of the bill, if the client wants to pay the amount by
installments, he will engage with the bank in a tawarruq transaction.11
In this case, the
11
Tawarruq is, literally, seeking wariq (silver) [i.e., liquidity], which means to buy a commodity on credit and then
to sell it for cash to a third party. The majority of jurists allowed [classical tawarruq], unlike ÑÊnah, where the
commodity is sold back to the first seller, which the majority of the jurists consider to be prohibited.

13. 13
client buys from the bank a commodity for deferred payment to be paid in twelve
monthly installments, for instance. The cash price of this commodity is equivalent to the
amount to be paid on the card. After acquiring ownership of the commodity by offer and
acceptance, the client appoints the bank as his agent to sell the same commodity in the
market on his behalf and to credit the cash in his account with the bank. The bank sells
the commodity in the market to a third party and credits the amount to the client’s
account in the bank. As mentioned earlier, the commodity price is specified to be
equivalent to the amount needed. The credit card unit then debits the client’s account to
cover the credit card bill. The amount created by the use of the credit card is then paid on
time (the grace period does not exceed three weeks), but the card holder is liable for the
debt created by the tawarruq transaction. The card holder then pays off this debt by
installment in a year (or more or less, according to the agreement mentioned in the
issuance of card).
c) If he uses the card again in the next month and the debt is established as his liability, he
shall follow the same previous procedures and will pay two monthly installments, one for
the first tawarruq and the second for the second tawarruq transaction. And this goes on
till he reaches his credit limit.
d) In all cases, he can pay the complete bill upon receipt of the bill, and there will then be no
need for the tawarruq procedures. The card will then remain on its original status as a
charge card.
e) Tawarruq has particular procedures that differ from one bank to another. With most
banks, if the client wants to do tawarruq, he buys directly from the bank. This also
applies on credit cards. Once the client receives bill and wants to do tawarruq, he will go
to the bank in person or call them to get the bank’s offer for the sale of a certain amount
of a commodity. After buying the commodity, the client will appoint the bank as his
agent to sell it. If the bank cannot get in touch with the client by the time [his debt]
payment is due, the bank may buy the commodity on the client’s behalf and then sell it in
the market. If the bank does so, that will be considered a fuÌËlÊ disposal, and its validity
depends on client’s later approval.12
The bank will revoke the contract if the client
objects to this disposal and will then consider it to be for the bank itself. The bank will
then ask the client to pay in a lump sum the debt created by the use of the card.
This is not the only structure for credit cards based on tawarruq. There are other credit
card structures with certain differences that have been issued by some banks.
For instance:
12
Editor’s note: A fuÌËlÊ disposal is carried out by one party on behalf of another without his authorization or
knowledge. It can become effective if permission is given after the fact.

14. 14
a) Instead of buying directly, the client, when the card is issued, can appoint a law firm to
carry out the transaction with the bank on his behalf and to then appoint the bank to sell
the commodity to a third party. The purpose of this arrangement is to [avoid] any
problem the bank might face in getting in touch with the client when it is time to pay
what is due on the card, since the client might be travelling or not be available at the
address the bank has for him.
b) Another form is that tawarruq is done on a monthly basis. We mentioned earlier that use
of the card in the subsequent month creates a new tawarruq transaction, which the client
pays separately. He will thus keep on paying multiple monthly installments. However,
through this structure, the tawarruq transaction executed at the beginning of each month
covers all of the client’s account. The client then starts paying the debt of the new
tawarruq as only one installment in a month.
13- THE MAIN ISSUES RAISED AGAINST THE STRUCTURE OF CREDIT CARDS
BASED ON TAWARRUQ
The most important issue raised against this structure of credit card is the claim that this
arrangement comprises ‘debt restructuring’ (qalb al-dayn), which makes it impermissible,
according to the critics.
Debt restructuring occurs when the creditor increases the maturity date for the insolvent debtor in
exchange for an increase in the amount owed by the debtor. Debt restructuring (qalb al-dayn) is
a term used by ×anbalÊs. Other jurists call it by other names. It falls under what the MÉlikÊs call
“dissolution of one debt for another” (faskh al-dayn bi al-dayn).
What can be understood from the ×anbalÊ books is that the engagement by the creditor with the
debtor in a new debt contract does not constitute the prohibited debt restructuring unless the
debtor is insolvent. This is because the effective reason (Ñillah) for the prohibition is only
realized in this case. The portion of the profit in the new debt would then correspond to the lost
profit on the old debt which has been delayed due to the insolvency. This will lead to “increase
the tenure for me and I will increase the debt for you”, which is precisely the usury of jÉhiliyyah
(the pre-Islamic period of ignorance) that is prohibited by consensus. However, if the debtor is
solvent and willing to pay the debt, not procrastinating, the engagement with him in a new
transaction that creates new debt would not be debt restructuring.
According to MaÏÉlib Uli al-NuhÉ SharÍ GhÉyat al-MuntahÉ, “Conversion of debt, i.e., deferred
debt on an insolvent debtor, for another period, is prohibited by consensus. Shaykh TaqÊ al-DÊn
said, “It is prohibited for the creditor not to grant respite to an insolvent debtor and [instead]
restructure his debt…”

15. 15
Ibn Taymiyyah said in his fatwÉs, “If debt matures and the debtor is insolvent, it is not allowed
to restructure the debt, with or without the use of a transaction. This is a matter of juristic
consensus.”
Ibn al-Qayyim said in al-Ùuruq al-×ukmiyyah, “Some of these transactions are prohibited by
consensus, like if the commodity is sold before taking legal SharÊÑah possession of it, or with a
SharÊÑah non-compliant condition, or restructuring the debt owed by an insolvent party. The
insolvent debtor should be granted respite [to settle the debt], and it is not allowed to increase the
amount owed.”13
14- ISLAMIC CREDIT CARDS WITH HIGH FEES
One of the alternative structures adopted by some Islamic banks is issuance of a card that allows
the client to pay the debt created by the use of the card on a monthly basis in twelve installments
without any attendant interest. You may ask: How would the bank receive its expected return if it
allows payment of the debt in installments without interest? The answer is: This card differs
from the normal card in that it has a fee schedule that is structurally linked to its issuance and
use. That is how the bank receives its return, which is not less than the normal return of the
unsecured credit card paid by installments. The issuance and the renewal fee are higher than
normal. And then a special fee is added with each use of the card. This is fixed and not linked
with the tenure or amount used. And there are some other fees associated with a cash withdrawal
from the machine…and so on.
This card did not achieve the success hoped for it. The reason is that most people carry a credit
card just in case, i.e. in order to have the means of payment ready if needed. Considerable time
may pass without them using it; therefore, they prefer a card where a fee is charged only upon its
use, but the fee of this card is linked to the issuance itself, and the card holder must pay it
whether he uses the card or not.
15- ISLAMIC CREDIT CARDS BASED ON A FEE FOR A GUARANTEE
As mentioned earlier, the true nature of a credit card, in our opinion, is that it is a guarantee
(kafÉlah). The card holder is the one who is guaranteed (makfËl). The beneficiary of the
guarantee is the merchant who accepts the card. The portion that the bank charges constitutes a
fee for the guarantee. We have already mentioned the difference of opinion among contemporary
jurists with regard to charging a fee on a guarantee. However, a group of contemporary jurists,
especially those who advise Islamic banks, are of the opinion that it is permissible to charge a fee
13
Al-Ùuruq al-×ukmiyyah, 1:352.

16. 16
on it. But, according to them, the fee is only to cover the issuance expenses, brokerage fee and
the like. It is rare for the fee to be specifically linked to the guarantee itself.
What is new in this topic is that an Islamic bank is planning to link the guarantee fee with the
tenure as well as the amount. The bank issues the credit card to its client. The client can pay off
the debt completely upon receipt of the bill. However, if he wants to pay in installments for a
year, then the bank will increase the amount and call it a guarantee fee (or that is how the card
designers conceived of it). The client will then pay the amount in installments that include the
fee. Apparently, for them the guarantee does not end when the guarantor pays the debt to the
guarantee beneficiary; rather, it is a continuous service that lasts till the guaranteed party is free
from his liability.
Allah―glory be to Him―knows best.