Dear Hadi,
Alrajhi Bank has a charge card that, according to them, in Shari'a compliant. It allows the cardholder to withdraw cash from ATMs, as well as buy goods and services legally without any interest, and with the enjoyment of an appropriate grace period. The bank says that by this charge card, they use our money for investment purposes and don't view it as loan.
In their terms and conditions, instead of interest on delayed payments, the bank says that the cardholder undertakes responsibility to pay the amount due in the monthly Statement of Account on the deduction date; otherwise, the card will be blocked, and if the block continues for a period specified by the bank, the cardholder’s name will be included in the bank’s black list and SIMAH. Additionally, the bank may automatically deduct all or part of the financial obligation due from any accounts, funds or deposits that belong to the cardholder without the need for any prior notice or warning for taking any required action for the recovery of the outstanding balance due.
Is holding such a card permissible?
Dear Reader,
Thank you very much for your question.
We cannot fully answer your question, because on this site, we do not issue fatwas about haram and halal in general, and your particular question requires not only the capacity to give Islamic fatwas, but also specialized expertise in Islamic finance.
That being said, we can give some thoughts and opinions. The issue with credit cards, from an Islamic perspective, is that most scholars consider the interest charged by the credit card companies to be riba. But to delve a little more deeply, we note that most conventional credit cards give an “interest-free period” where-in the balance can be paid without interest. The question then becomes whether this is permissible i.e., to have a conventional credit card but always pay the balance on time.
In principle, one would think that this should be okay, since no interest is paid. However, many scholars find that conventional credit cards are impermissible in shariah if their terms include the imposition of usurious interest if the payment is not made on time. This is because even with the intention to pay off the balance before interest accrues, the contract itself necessitates involvement with riba if payments are delayed, i.e., agreeing in principle to something Islam forbids, even if in practice, we never enter into the haram. These scholars feel that Muslims should not enter into such contracts.
However, other opinions are more lenient, allowing the use of conventional credit cards if the balance is always paid on time, particularly for those living in the West, where credit cards become a necessity for many transactions, including such things as renting cars, or they become necessary to establish a credit history. Once again, though, in these opinions, permissibility hinges on paying the balance on time to avoid interest. This opinion, for example, has been expressed by Mufti Taqi Usmani and by Dar al-Ifta al-Misriyyah (Egyptian Fatwa House), and for the record, this is the opinion we agree with.
However, because of the concerns regarding conventional credit cards among many Muslims, Islamic banks (like Al Rajhi Bank, but we won’t discuss them specifically) try to provide “shariah-compliant” credit cards. This means they should not charge interest. But of course, the credit card company has to make money somehow, so these companies often use a fee-based model (known as an Ujrah model), which is typical in Islamic financial products. These fees may include annual fees or service fees, but they are not interest-based charges. There is in general no problem with these service fees from a shariah perspective. Moreover, these cards typically offer an “interest-free” period, perhaps up to 55 days, where-in if you pay off the full balance during this period, you don’t incur any extra charges, purportedly making the use of the card halal.
However, several issues come up. We will refer you to a specialized paper on this topic to delve into the issue more clearly: Islamic Credit Card based on Ujrah
Without delving into the specialized detail of the above article, let us summarize two key points, because we believe that the issue in questions like yours isn’t so much halal or haram, but whether you should be involved in this practice even if it is halal.
The first issue has to do with the conditions on the “Islamic” credit card when used in normal circumstances (i.e., within the grace period). Some financial analyses have found that the fee imposed by the halal credit cards is higher than conventional banks (quoting from the above article: “The service charge in the Ujrah credit card is often hidden, but it is a high cost compared to conventional banks (Siraj et al., 2015, as referenced in the above paper).” In fact, the above paper goes on to say that some scholars disapprove of these Ujrah credit cards: “A group of contemporary scholars have a contrary opinion on credit card application and operations. They argue that it is a modern way of reviving riba and a hilah (trick) to legitimize interest rate, which is a non-Islamic structure.” What they are getting at here is that while the user is technically not paying interest, he is still being taken advantage of, because he pays excessive fees for the privilege of using the card, and may be forced by necessity to enter into such an agreement.
Perhaps the bigger issue is that of penalties. Let us say that you are fine paying the annual fee or service fee, and always intend to pay the credit card balance on time, but then you miss a payment. In that case, the bank may charge you a penalty. Here opinions are divided. Some say that such a penalty is not allowed, and would be tantamount to riba. This is the opinion we tend towards, based on the verse from surat al Baqarah (2:280):
"And if someone is in difficulty, then grant him a delay until a time of ease. But if you forgive them, that is better for you, if you only knew."
This verse highlights the importance of giving the debtor time to repay, especially if they are facing hardship, and even encourages forgiveness as a virtuous act. It emphasizes mercy over strictness in such financial matters.
Others scholars, however, say that the penalty is allowed, providing that it is a fixed fee and not a percentage basis of the balance, in which case it becomes riba.
You also mentioned several other penalty stipulations such as the bank being able to collect from you in any fashion, etc. We feel that these practices put you at an unfair disadvantage, and God knows best.
Certainly, we feel that the bank should make a fair wage for extending you the capacity to buy things when you are not paying cash, either because you do not have the money or do not want to spend the money now, but want the product now.
However, if you would end up paying excessively in penalty fees or having money seized from your accounts without notice or consent, then we think this is not in the Islamic spirit. We suggest that you check other “shariah-compliant” credit cards from other banks for their terms, or that perhaps you should avail yourself of the more lenient opinions regarding using conventional credit cards that we quoted above.
Again, we are not talking here about halal and haram, but rather that “Islamic” alternatives should not put you at more of a disadvantage than so called “non-shariah compliant” credit cards. That is our opinion and God knows best.
In peace.