An overview of AAOIFI Standard Number Two is presented. It should be noted only a summary and overview of the standard is presented, the full standard is available from AAOIFI.

Scope of standard

The standard is applicable to debit cards, charge cards and credit cards that are issued by institutions to their customers to enable the latter, by using the cards, either to withdraw cash from their accounts or to obtain credit or to pay for goods or services purchased.

The standard is issued on 27 Safar 1421, corresponding to 31 May 2000.

Shari’a rulings for different types of card

Debit card

It is permissible for institutions to issue debit cards, as long as the cardholder does not exceed the balance available on his account and no interest charge arises out of the transaction.

 

Charge card

It is permissible for institutions to issue charge cards on the following conditions:

• The cardholder is not obliged to pay interest in the case of delay in paying the amount due.
• If the institution obliges the cardholder to deposit a sum of money as a guarantee and this amount is not available for the use of the cardholder, then it must be made clear that the institution will invest the money for the benefit of the cardholder on the basis of Mudaraba and that any profit accruing on this amount will be shared between the cardholder and the institution according to a specified percentage.
• The institution must stipulate that the cardholder may not use the card for purposes prohibited by the Shari’a and that the institution has the right to withdraw the card in case such a condition is violated.

Credit card

It is not permissible for an institution to issue credit cards that provide an interest-bearing revolving credit facility, whereby the cardholder pays interest for being allowed to pay off the debt in instalments.

 

General Provisions

The affiliation of the institution to membership of international card regulatory organizations

• It is permissible for institutions to join the membership of international card regulatory organizations, provided the institutions avoid any infringements of Shari’a that may be prescribed by those organizations.
• It is permissible for the institutions to pay membership fees, service charges and other fees to international card regulatory organizations, so long as these do not include interest payments, even in an indirect way, such as in the case of increasing the service charge to cater for the granted credit.

 

Commission to the card issuer payable by merchants accepting the card

It is permissible for the institution issuing the card to charge a commission to the party accepting the card at a percentage of the purchase price of the items and services purchased using the card.

 

Fees charged by the institution to the cardholder

It is permissible for the institution issuing the card to charge the cardholder membership fees, renewal fees and replacement fees.

 

Purchasing gold, silver and currency with cards

It is permissible to purchase gold, silver or currency with a debit card or a charge card, in cases where the issuing institution is able to settle the amount due to the party accepting the card without any delay.

 

Cash withdrawal using a card

It is permissible for the cardholder to withdraw an amount of cash within the limit of his available funds, or more with the agreement of the institution issuing the card, provided no interest is charged.

It is permissible for the institution issuing the card to charge a flat service fee for cash withdrawal, proportionate to the service offered, but not a fee that varies with the amount withdrawn.

 

Privileges granted by card issuing parties

It is not permissible for institutions to grant the cardholder privileges prohibited by the Shari’a, such as conventional life insurance, entrance to prohibited places or prohibited gifts.

It is permissible to grant privileges to the cardholder that are not prohibited by the Shari’a, such as a priority right to services or discounts on hotel, airline or restaurant reservations and the like.