Fatawa on Credit Cards

Ruling on using/owning Visa and Credit Cards

Visa cards and credit cards generally include a Riba (usury) condition. This is because these cards enable their owners to take a certain amount of money via the bank, even if the person does not have money in his account that has certain limitations.

Some banks give a grace period to pay without any consequence or penalty. If the person does not pay in the allocated grace period, he has to pay Riba (interest). The duration of the grace period is between 40 to 55 days. When the grace period is over, they will start to count the interest (penalty) for every late day. However, if the person paid the loan during the allowed time duration, the bank would not take any interest from him.

Some Islamic banks that issue Visa cards do not do that, i.e. they do not put this condition.

Accordingly, the credit cards that contain this Riba condition are not permissible. But if they are void of it, then it is basically allowed.

The Islamic Fiqh Council has issued a statement – no. 108 (2/12) – concerning non-covered credit cards (i.e., a card covered by money pre-deposited in the card account), and the ruling on the fees charged by the banks. 

Herein follows the text of this statement: The International Islamic Fiqh Council, belonging to the Organization of the Islamic Conference, in its eighteenth session in Riyadh, Kingdom of Saudi Arabia from 25 Jumaada al-Aakhirah 1421 AH to the beginning of Rajab 1421 AH (23-28 September 2000 CE).

Based on the statement of the council no. 5/6/1/7 about financial markets and credit cards, it was decided to give a definitive answer on the Shar’i (legal) way of dealing with credit cards and the ruling on these cards in a subsequent session.

And in reference to the statement of the council in its tenth session no. 102/4/10 on the subject of non-covered credit cards.

After listening to the discussion on this subject by the Fuqaha’ (jurists) and economists, and referring to the definition of non-covered credit cards as given in statement no. 63/1/7, according to this definition the non-covered credit card is a financial document given by the issuer (the issuing bank) to an individual or company (the card carrier) on the basis of a contract that enables him to buy goods or services from companies who accept it without having to pay on the spot because the issuer of the credit card has to pay according to the contract, and the payment comes from the account of the issuer, then this payment is demanded from the card-carrier at regular intervals. Some of them (card issuers) charge interest on the unpaid balance after a certain amount of time from the date of the bill, and some do not charge interest.

(The council) has decided the following:

Firstly: It is not permissible to deal with the non-covered credit cards if interest is stipulated, even if the card applicant is determined to pay within the grace period.

Secondly: It is permissible to issue non-covered cards if there is no condition of paying interest on the original loan.

Based on that:

a- It is permissible for the one who issues the card to charge set fees when issuing or renewing a card, because these are fees to cover actual services.

b- It is permissible for the issuing bank to take commission from the company that accepts this card and sells on that basis, provided that the company sells the product by credit card for the same amount as it sells if for cash.

Thirdly: Cash withdrawals by the card carrier are a loan from the issuer, and there is nothing wrong with that from a Shar’i (Islamic law) point of view so long as it will not result in interest. Set fees that are not connected to the amount or length of this loan are not regarded as interest.

Any charges in addition to the set charges, such as if the charges exceed the amount required to cover the services offered, are Haraam (forbidden) because that is Riba (usury) which is forbidden in Sharee’ah (Islamic law), as was stated by the council in its report no. 13 (10/2) and 13 (1/3).

Fourthly: It is not permissible to buy gold and silver or currency with the non-covered card. (End quote).

Shaikh Sa’d Al-Khathlan (Hafidhahullaah) said: “It is noticed that the Fiqh Council decided the impermissibility of issuing credit cards and dealing with them as long as they are consisting of interest as a condition. The reason behind that is that these cards provide its carrier and enable him to withdraw a certain amount of money even though he has nothing in his account. And these banks set interest on this amount of money if the grace time for payment which is 40-55 days is over and the person did not pay the installment. They set interest for every delayed day. Therefore, these cards are not permissible, and that is for two reasons:

a. The mere signing of the contract and acceptance of the card with this condition is approval and acceptance of Riba (usury), and this by itself is impermissible, even though the client is ready to pay before the expiration of the grace period.

b. No one knows what one will be exposed to in the future. One could resolve to pay during the allowed grace period, but some incident could happen, and he will not be able to pay in the time allowed.

However, if the card is void of this condition, then it is permissible to issue it. And many Islamic banks issue such cards without Riba (i.e. without interest).” [End quote]

Source:

📚 Fiqh Al-Mu’amalaat Al-Maaliyyah Al-Mu’aasirah (The Jurisprudence of Contemporary Financial Dealings) by Shaikh Sa’d Al-Khathlan (Hafidhahullaah) (Professor in the Department of Jurisprudence (FIQH) at Imam Muhammad bin Saud Islamic University in Riyadh who also chairs the Board of Directors of the Saudi Fiqh Association, in addition to having a previous membership in the Council of Senior Scholars.)

Ruling on Dealing with Companies like Tabby and Tamara in Electronic Payment with Installment

Shaikh Sa’d Al-Khathlan (Hafidhahullaah) said: “Structure wise, these companies are correct. This is because they buy the merchandise from the shops and sell it to the client in installments. However, there is a kind of ambiguity and obscurity in the matter, which is imposing a late penalty. Some of these companies impose penalties if the time exceeds the installment deadlines and the buyer is late in paying the installments. The client should pay a new amount (as penalty) and they claim that they are spending it on the poor and needy (i.e. spending in charity).

And this condition is not permissible i.e., referring to the aforementioned Fatwa of the Islamic Fiqh Council who said that it is impermissible. Although, there are some contemporary scholars who are of the opinion that it is permissible with the condition of paying the late penalty in good causes (i.e. spending in charity), the most correct point of view, which most scholars agree upon, is that it is impermissible.

Accordingly, dealing with such companies is doubtful and not forbidden because the issue is disputable among the scholars. However, whoever among the clients guarantee paying the installments in time without delay and paying the penalty, then it is permissible. Like those who have a monthly salary and can pay in the set time period. So, he will not fall into such doubtful or forbidden matters.

It is more appropriate to leave such kinds of dealings because the Prophet (Salla-Allaahu ‘alayhi wa sallam) said: “Both legal and illegal things are evident, but in between them there are doubtful (suspicious) things and most of the people have no knowledge about them. So, whoever saves himself from these suspicious things saves his religion and his honor.” [Al-Bukhaari no. 52] and since this issue is linked to Riba (usury) and Riba is a grievous matter. This is because the penalty that they impose on the client is in reality, Riba that was prevalent in the time of Jahiliyah (the pre-Islamic era) which is based on “Settle the amount or else you pay an increased amount.”

Sources:

  https://www.youtube.com/watch?v=2plpenijccI

https://www.youtube.com/watch?v=Okag0Ey1SQs