An Islamic credit card is by definition a financial tool designed within the framework of Islamic Finance principles, offering a Shariah-compliant alternative to conventional credit cards by avoiding interest (Riba) and unethical financial transactions.
An islamic credit card operates on the basis of Islamic contracts such as Murabaha (cost-plus sale), Ijara (leasing), or Qard Hasan (benevolent loan), ensuring that all transactions are free from elements forbidden in Islam, including Riba, Gharar (uncertainty), and Maysir (gambling).
Islamic credit cards facilitate transactions by allowing cardholders to make purchases or withdraw cash within a predefined limit, where the bank charges a profit rate or service fee instead of interest, adhering to Islamic ethical standards.
The card issuer invests the fees collected from cardholders in Shariah-compliant ventures, ensuring that the earnings and operations of the credit card are halal and contribute positively to the community.
Repayment terms for Islamic credit cards emphasize transparency and fairness, with cardholders required to repay the used amount within a grace period to avoid any penalty that would resemble Riba, ensuring practices align with Islamic values.
Islamic credit cards often come with unique features such as charity contributions, where a portion of the transaction fees is donated to charitable causes, reflecting the Islamic principle of social welfare and mutual benefit.
They also provide various benefits and rewards similar to conventional cards, including cashback, loyalty points, and travel perks, but ensure that these benefits are sourced and applied in a manner compliant with Islamic law.
By offering a Shariah-compliant alternative to conventional credit cards, Islamic credit cards represent a significant advancement in Islamic Finance, enabling Muslims and others interested in ethical financing to manage their finances effectively and responsibly.