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‘Credit card-i’ is known as a magicalcard that provides a paymentinstrument which indicates aconvenient line of credit and arevolving facility. The earliest Islamiccredit card facility introduced inMalaysia was based on Bai Al Inah.Under this concept, the customer isrequired to buy the underlying assetfrom the bank with deferred payment;

and subsequently the customer will sellit back to the bank at a lower price withcash. This transaction will create a debtobligation due from customer over acertain period of time.

The di erence between the selling priceand purchase price will be regarded as the

ceiling income to the bank. The ShariahAdvisory Council ruled that the conceptof Inah in credit card-i is permissible

 based on the following mechanism:

1. The customer purchases an assetfrom the bank, on deferred terms(the purchase price comprises costplus profit); for example, [RM11,800(US$3, 888) (RM10,000 (US$3,295 ) +RM1,800 (US$593 )], to be paid withinone year by the customer; and

2. The customer thereaer will sell back

the asset to the bank on a cash basis(at cost value); for example RM10,000.

The selling price of the asset is lowerthan the purchase price. This is theamount which will be credited into amarginal Wadiah account of the bank,for the customer’s use.

Tawarruq-based credit card-iSome scholars, especially in the MiddleEast, criticize the practice of Inah due tosome of its salient features. One of them

is the mechanism of sell-and-buy backwith two di erent payment methods.

The  first transaction is initiated by the bank, which sells an asset at di eredpayment to a customer, and then thecustomer subsequently sells it back tothe bank at a lower price with a cashpayment.

Hence, the asset initially bought on thedeferred price will be sold back to thesame party and the asset/commodity isreturned to the original owner which

makes it quite obvious for some scholarsas to circumvent Riba. Therefore, theconcept of Tawarruq is introduced andadopted to curb the issue.

According to the Fiqh jurists, Tawarruqcan be defined as a person (Mustawriq)who buys an asset/commodity at adeferred price, in order to sell it at alower price with cash. Usually, he sellsthe asset to a third party, with the aim ofobtaining cash.

This is the classic Tawarruq, which ispermissible, provided that it complieswith the Shariah requirements on sale(Bai). The contemporary definitionon organized Tawarruq is when theMustawriq buys merchandise froma local or international market on adeferred price basis. The financierarranges the sale agreement eitherhimself or through his agent.Simultaneously, the Mustawriq and thefinancier execute the transactions, usuallyat a lower spot price.

In a Tawarruq-based credit card-i facility,the mechanism is quite similar to Bai AlInah concept except for the followingcharacteristics:

1. There are three parties involved —the customer, bank and broker.

2. The subject maer is not returned tothe original owner.

With the Tawarruq concept, the bankwill purchase a commodity from brokerA; then will subsequently sell it tothe customer at a markup price. The

amount represents the debt obligationdue from the customer who will thensell it to broker B at a lower price withcash. The proceeds from this sale will bedeposited into the credit card account asthe designated limit to be utilized by thecardholders.

However, there are disagreementsamong scholars regarding a few issues,especially on a pre-arrangement betweenparties in a Tawarruq Munazzam(organized Tawarruq). They opinethat the person who seeks liquidityshould transact with the parties whoare not assigned prior to the executionof contract. In other words, it shouldcomply with the rules of Tawarruq Fiqhiwhich is solely accommodating theneed of the Mustawriq to seek liquidity.Once again, a new concept should beintroduced to minimize the issues in BaiAl Inah and Tawarruq and thus, unveilthe new development of the credit card-ifacility.

Emergence of the Ujrah

concept 

The regional Shariah dialogue which washeld on the 28-29th June 2006 was one ofthe e orts aimed at harmonizing andenforcing deep understanding amongShariah scholars. One of the resolutionsmade was to limit the use of Inah andTawarruq in the product o ering of theIslamic banking industry.

In order to tap into the market ofthose who would like to enjoy a creditcard facility while still observingShariah issues, the Ujrah conceptwas established at the right time as

Ujrah-based credit cards: Innovations in

Islamic consumer banking products

The Ujrah concept is the latest development in the Islamic credit card practice globally. AHMAD MUKARRAMIand JUMADI KADIR explore.

‘Credit card-i’

is known as

a magical card

that provides a

 payment instrumentwhich indicates

a convenient line

of credit and a

revolving

 facility 

continued...

8/10/2019 Ujrah Based Credit Card: Innovation in Islamic Banking products

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the latest development in the Islamiccredit card practice globally. It is highlyrecommended and practiced widely in

the Middle East due to its characteristicsand features that allow banks tocharge a fee over service rendered tothe counterparty. The fee imposed isdetermined upfront and mutually agreed

 by all parties. This salient feature makesit more transparent to both parties interms of the charge quantum which isknown upfront and justifies the servicerendered.

The significant di erence betweenthe concepts of Ujrah and the otherconcepts are in terms of the relationship

 between the parties and the essence ofthe contract. The Ujrah concept does notinvolve selling and buying activities.Hence the debt obligation is absent inthis sense.

Credit cards based on UjrahThis is a positive development for Islamic

 banking products that o er an alternative

to the highly criticized Shariah concept.Apart from that, an Ujrah-based productis more acceptable internationally andis in line with one of the objectives ofIslamic  finance: to harmonize the Shariahconcept globally. In 2009, HSBC Amanahintroduced an Islamic credit card basedon Ujrah, followed by CIMB Islamic.RHB Islamic Bank has also shown itscommitment by adopting Ujrah as theunderlying concept.

Generally, the concept is about providingthe cardholder with privileges, services

and entitlements in exchange of a fixedfee. Taking into consideration the services

rendered, it must be clearly specifiedand agreed by the cardholders. Amongthe entitlements given to the cardholders

is to utilize thefi

nancial limit given bythe issuers. The cardholders will enjoycertain privileges specially designedfor promotions, discounts on certainmerchants and as well as the convenienceof online shopping. This will include theconvenience of cashless transactions, asmost merchants prefer payment via cardcredit in order to enhance total collection,i.e. several bill payments.

In line with the spirit of Shariah that isenjoining goods and forbids evils, thecardholders are also assured to have a

special control mechanism embeddedon the card which will only facilitatethe lawful transaction of products andservices. Thus, the purchase of liquor,gambling activity and at karaokepremises will not be authorized. It isdone by tagging certain merchant outletsthat conduct non-Shariah compliant

 business activities via barring selectedmerchant codes. If there is an aemptto perform such a transaction, it will beautomatically rejected.

ConclusionThe International Council of FiqhAcademy of the OIC has ruled the concept

of Tawarruq Munazzam and ReversedTawarruq as impermissible. The reason

 behind this decision is due to the elementof deception in its implementation thatinvolves pre-arrangement for the purposeof obtaining quick cash facility.

Therefore, in line with the e orts touphold the development of Islamicfinance, there is a need to move awayfrom highly criticized issues. An Ujrah-

 based credit card is among the latestdevelopments and innovations meantto minimize the issues surrounding the

Islamicfi

nance globally. It is widelypracticed in the Middle East as its featuresare tailored to meet the demand ofcardholders to enjoy a Shariah compliantcredit card facility.

 Ahmad Mukarrami is the head of the Shariahdivision and Jumadi Kadir is the acting head ofthe Shariah research & training department atRHB Islamic Bank. They can be contacted atahmad_mukarrami@rhbislamicbank.com.myand jumadi_kadir@rhbislamicbank.com.my.

Continued

This is a

 positive

development for

Islamic banking

 products that offer

an alternative to

the highly criticized

 Shariah

concept 

LONDON

6TH-7TH JUNE 2012,6TH-7TH JUNE 2012,

JUMERIAH CARLTON LONDONJUMERIAH CARLTON LONDON

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