Scope and Definition
the Payment Cards standard governs the issuance, usage, and fee structures for all forms of payment cards issued by Islamic financial institutions. The standard establishes four card categories and prescribes specific Shari'ah conditions for each. It covers the contractual basis of card issuance, the permissible fee structures for cardholders and merchants, and the rules governing rewards programs and liability. the Payment Cards standard does NOT cover stored-value instruments that are not classified as payment cards, nor does it cover electronic fund transfers that do not involve a card instrument.
Card Types and Shari'ah Rules
1. Debit Cards (Bitaqat al-Khasm al-Fawri)
Definition: A debit card enables the cardholder to spend from their own funds held in a current or savings account. Each transaction immediately reduces the cardholder's available balance. The card issuer acts as an agent (Wakil) executing the cardholder's payment instructions. Permissibility conditions: • The cardholder must have a pre-existing account with sufficient funds • The card may NOT create an overdraft facility that generates interest • The institution may charge an annual issuance fee or per-transaction fee as agency compensation • If the institution grants an interest-free overdraft (Qard Hasan) as a courtesy, this must be a separate arrangement and cannot be a condition of card issuance
2. Prepaid Cards (Bitaqat al-Daf' al-Muqaddam)
Definition: A prepaid card is loaded with a specific monetary value purchased by the cardholder in advance. The cardholder spends from this pre-loaded balance until it is exhausted. The relationship between the issuer and cardholder is one of agency (Wakalah) — the issuer holds the funds as trustee and disburses them on the cardholder's instructions. Permissibility conditions: • The card must be purchased at face value — selling a 500 AED card for 520 AED constitutes Riba al-Fadl (excess in exchange) • The pre-loaded value must be available for immediate use; the issuer may not invest these funds in interest-bearing instruments • Expiry provisions must be clearly disclosed at the point of sale • Unused balances must be refundable to the cardholder unless a valid service fee is deducted
3. Charge Cards (Bitaqat al-Khasim al-Ajil)
Definition: A charge card extends a short-term credit facility where the cardholder must pay the FULL outstanding balance at the end of each billing cycle (typically monthly). No revolving balance is permitted — the cardholder cannot carry unpaid amounts forward with interest. Permissibility conditions: • The full balance must be settled by the payment due date — no option to pay a "minimum payment" and carry the remainder • The institution may charge a fixed annual membership fee and a per-transaction service fee • If the cardholder fails to pay by the due date, the institution may impose a fixed late payment service charge (not calculated as a percentage of the outstanding balance) to cover actual administrative costs • The institution may NOT charge interest or a percentage-based penalty on the overdue amount, as this would constitute Riba al-Nasi'ah (interest on deferred payment)
4. Credit Cards (Bitaqat al-I'timan)
Definition: A credit card provides a revolving line of credit where the cardholder may carry an unpaid balance beyond the billing cycle. This is the most Shari'ah-sensitive card type because revolving credit with interest is the dominant conventional model. Strict Shari'ah conditions: • The credit facility must be structured as Qard Hasan (benevolent loan) — the institution lends the cardholder funds interest-free • The institution may charge a fixed annual fee and fixed service charges per transaction as compensation for its services, but these fees must NOT vary based on the outstanding balance • Any amount unpaid by the due date remains a Qard (loan) — the institution may NOT charge interest or a percentage-based fee on the outstanding amount • If the cardholder defaults, the institution may impose a fixed administrative charge to cover actual collection costs, but this charge must be demonstrably linked to real expenses, not calculated as a profit margin on the debt • The Shari'ah board must review and approve the card's fee structure before issuance to confirm no hidden Riba exists
Card Issuance and Merchant Fees
Issuance fees: The institution may charge the cardholder a one-time issuance fee and/or an annual renewal fee. These fees represent compensation for the administrative service of issuing and maintaining the card. They must be disclosed upfront and may not be disguised interest charges. Merchant fees: The institution may charge merchants a discount fee (a percentage of the transaction value) for processing card payments. This fee is permissible because it compensates the institution for its role as payment intermediary (agent). The merchant fee is a service charge for facilitating the sale, not a form of Riba. The merchant receives the net amount after the discount, and the cardholder pays the full listed price.
Rewards and Loyalty Programs
Funding source: Rewards programs — including cashback, air miles, and loyalty points — must be funded from merchant discount fees, not from the cardholder's deposits or from interest income. This distinction is critical: if rewards are funded from interest-like income on revolving balances, the entire program becomes tainted with Riba. Structural requirements: • Rewards must not incentivize excessive spending or debt accumulation — a program that gives disproportionate rewards for carrying a balance violates Shari'ah principles • Points or miles must have a clear redemption value and must not expire without reasonable notice • The Shari'ah board must confirm that the reward structure does not constitute a form of Riba or Gharar
Card Guarantees and Liability
Lost or stolen cards: When a card is reported lost or stolen, the institution must immediately block the card. The cardholder is liable for transactions made before reporting the loss, but the institution bears liability for unauthorized transactions made after the cardholder reports the loss. The institution may set a maximum liability cap for the cardholder's pre-reporting exposure. Disputed transactions: The institution must provide a transparent dispute resolution mechanism. If a transaction is proven unauthorized, the cardholder must be refunded. The institution bears the risk of merchant fraud as part of its agency role.
The Three Tests for a Compliant Card Programme
A card product can be reasoned about with three tests. Each test isolates a single doctrinal risk; passing all three is necessary, and failing any one converts the product from a compliant payment instrument into a vehicle for prohibited gain.
Late-Payment Charge — A Closer Look
The late-payment charge is the most frequent point at which a notionally compliant credit card slips into the prohibited form. Three constraints must hold simultaneously. First, the charge must be a fixed administrative amount, not a percentage of the unpaid balance — a percentage charge is interest in form. Second, the charge must be justified by real, documented administrative cost — the institution must be able to show what it actually spent on collection, dunning, customer-service contact and reconciliation; a number plucked from the conventional market is not a justification. Third, where the institution wishes to deter procrastination beyond cost recovery, the additional amount should flow to charity, not to the institution's profit-and-loss account, with the donation policy disclosed at issuance and audited periodically. A late-payment regime that fails any of these three constraints transforms the card from a payment service into an interest-bearing facility.