ISLAMIC CREDIT CARD IN MALAYSIA Jadi-Libre

Islamic Credit Card: A Comparison Study between Its Application in Malaysia and
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ISLAMIC CREDIT CARDS:

A Comparison Study between Its Application in Malaysia and Indonesia
ABSTRACT
The practice of Islamic credit cards nowadays is still debatable among Muslim
scholars especially regarding to its contracts and its effectiveness to attain maslahah.
Study about Islamic credit cards is very essential and some studies have done on it.
However, studying about the comparison between Islamic credit cards practiced in
Malaysia and Indonesia in the recent year is still limited. Therefore, this paper would
like to tackle this issue by comparing Bank Islam Card, the Islamic credit cards issued
by Bank Islam Malaysia which is the first Islamic credit card issuer in Malaysia;
MPower Credit Card-I issued by HSBC Amanah which is the first Islamic credit card
used ujr as a contract; and Dirham Card issued by Bank Danamon Syariah which is
the first Islamic credit card issuer in Indonesia. From this analysis, it can be asserted
that regarding to the legalization of the contract, Islamic credit card issued by HSBC
Amanah is more secure than Bank Islam Malaysia. Moreover, the development of
Islamic credit cards in Malaysia is faster and more attractive than in Indonesia
especially after the issuing of Islamic credit cards by HSBC Amanah.
Keywords: Islamic credit cards, Bank Islam Card, MPower Credit Card-I, Dirham
Card
1. Introduction
Islamic Banking Systems and Operations

Islam is the way of life which brings happiness of human life for all times and places
in terms of its flexibility. One of the clearest manifestations of this flexibility is in the
field of transactions that is based on the “concept of permissibility in principle
provided that it does not involve prohibited objects”. Muslim jurists usually find no
difficulty in arriving at suitable ruling on any new developments in such field.
In this globalization time, the needed of sale transaction is easier than previous
years ago. Credit card is one of the easy facilitation which is provided by banks as
intermediary institution. Today, the needed of the credit card becomes more important
and essential in economy because in terms of safety than holding cash money.
Islamic finance that has garnered tremendous interest in the face of almost two
years of global economic crisis will have an important role to play come 2010.
Regardless, Islamic credit card is issued by the Islamic banks especially to
convenience of Muslim customers to make transactions without holding any cash on
hand. It is also for security on customers behalf. Nowadays customers are more
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conscious about the usage of the Islamic credit cards. Not only this credit card is
interest-free, but there is no profit charges if full payment is made before the due date.
In Malaysia, the Islamic credit card had been launched firstly by Bank Islam
Malaysia in 2003, namely Bank Islam Card (BIC) used bay al inah as a contract.
After that, on April 2009 HSBC Amanah launched the first Islamic credit used ujr as
a contract, namely MPower Credit Card-i. Meanwhile, in Indonesia, the Islamic credit
card was launched in 2007 firstly by Bank Danamon Syariah, namely Dirham Card.
However, Islamic credit cards practiced in both countries are still debatable
among Muslim scholars regarding its contracts and its effectiveness of attaining
maslahah. Therefore, using interview results and some literature reviews, this paper
intends to explore how the Islamic Banks (IBs) can facilitate the need of Muslim in
terms of credit card which has become a necessity in many circumstances. The
interview was conducted on Monday, March, 8th 2010 at 2.30 pm - 3.30 pm in Ahmad
Ibrahim Kuliyyah of Laws with Asst. Prof. Dr. Rusni Hassan, a shariah advisor on
HSBC Amanah Malaysia Berhad. Whereas, some literatures are reviewed from
journals, books, and articles related with the Islamic credit card.
The structure of this paper is as follow: Section 2 introduces conventional
credit card and Islamic credit card, system of conventional credit card, types of

Islamic credit card and the Islamic source of these Islamic credit card types. Section 3
describes the practice of Islamic credit cards in Malaysia by using HSBC Amanah and
Bank Islam as the samples. Section 4 explains credit cards in Indonesia especially in
Bank Danamon Syariah. Section 5 discusses problems, opportunities and challenges
of Islamic credit cards practiced in Malaysia and Indonesia; and the last part is
conclusion.
2. Credit Cards
Billah (2007) explained that credit card known as plastic money is an essential mode.
In today’s society, people own credit card for many reasons. Such as, to obtain credit
facility, cash advance, and easy payment.
Credit card is different from a debit card that credit card does not remove
money directly from user account after every transaction as it does with debit card.
Credit card is different from charge card too. Charge card require from card holder to
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buy full amount of balance by the due date. In contrast credit card allows the card
holder to arrange their payment monthly at the cost of interest.
Bakhshi (2006) stated that credit card offers a line of credit to the user who
can spend up to a pre-arrange ceiling level. Credit card has identification information
written on it such as a signature or picture and authorized person to charge purchase
and services to his account, which one will billed periodically. The credit card is
inventive system that involves all aspect of cryptography (secret code). Moreover, it
has a microprocessor built into the card itself.
There are many types of credit card issues based on the income and the
services which are provided by the companies. Standard cards are available to anyone
over 18, subject to the application being accepted platinum gold or black are issue for
higher credit limit and have lower interest rates. Premium are offered for people who
consider to be a better credit risk, also available to people who have a specified
minimum income level quit high normally. Sometime many cards offer extra benefits
such as travel insurances, product guarantees and preferential loan rates. There is
another type of credit card issued on behalf of charities and other organizations like
football clubs and universities. This kind of card the company will generally make a
donation to the charity or affinity group with no addition charge to the cardholder.

2.1. Islamic Credit Cards
Massey on Ferdian et. al (2008) defined Islamic credit card as a payment that meet
with at least three criteria of Islamic principle. First, card must meet the shariah
requirement on lending. It must ditch the three essential prohibitions in the Islamic
finance which are riba, gharar and maysir.
Riba is connected with interest ideal and it clearly prohibited in holy qur‟an.
Therefore Islamic credit card is not allowed to charge any interest even if the
cardholder does not pay on time. Gharar, or uncertainty, in the practice of Islamic
credit card should be avoided by excluding a charging scheme where the monthly
repayment or service charges are variable based on a number of factors. Maysir or
gambling is also prohibited. Secondly, an Islamic credit card must have certainty to be
accepted worldwide it should use payment scheme like visa or master card. Beside
that it should provide some available facilities such as CVV number for transaction
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and held amounts. Furthermore, the merchant charge and issuer’s fee should not be
withheld. Thirdly, an Islamic credit card should not animate behavior that considers
haraam.
Generally, the differences between Islamic credit card and conventional credit
card are provided in Table 1.
Table 1: Differences between Islamic and Conventional Credit Card

Islamic Credit Card Conventional Credit Card
No money lending because transaction Money lending because the

of the card based on trade (bay‟) transaction based on loan
Non compounding of profit. Profit Compound of profit based on the

margin is fixed remaining balanced
Control on transactions/merchants; user
are allowed to carry out only halal item User buy whatever they want
on services
Source: Ma’sum (2007)

2.2. The Model of Islamic Credit Card
A recent study by Sultan (2001) talked about many proposals of credit card models
that are in Islamic financial field. It explained that any model of an Islamic credit card
used many contracts to serve the various purposes.
2.2.1. Al-Hiwalah al-Mutlaqah, Qardhul Hasan and Ujr

The first proposal is taken by the combination among al-Hiwalah al-Mutlaqah,
Qardul Hasan, and ujr contracts. Firstly, the bank issues the card to the customer. It
issues basis of al-ujr. So, al-ujr contract between the bank and the customer in which
bank charges a fix annual fee to the customer for the services given such as issuing
cards and billing services. Secondly, al-Hiwalah is contract that allows the customer
to use the fund. When the customer purchases on credit as he charges it to his card,
customer becomes a debtor. The merchant who accept the card becomes the principle
creditor. The merchant transfers the debt to the bank which is willing to buy the debt.
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Therefore the bank will be the new principal creditor. To get simpler, figure 1
provides this model.
Figure 1: The Model of Al-Hiwalah al-Mutlaqah, Qardhul Hasan and Ujr
1
Customer
3 Merchant
2
BANK
Source: Sultan (2001)
Descriptions:
1. Customer purchases from merchant. The customer becomes the debtor and the
merchant becomes the principal creditor.

2. The merchant transfers his debt to the bank in which the debt will be paid on
full.
3. In this step, the bank becomes new creditor and the customer becomes the
debtor.
Shariah issues about this model:
1. The basis of the financing is not the debt or loan amount. It is on the purchase
made by the customer which is being deferred in its repayments. Because if
the financing bases on debt and the cardholder pay interest it becomes issue of
shariah.
2. The customer immediately gains ownership of the asset because the sale
contract is affected when the merchant accepts the credit payment as a valid
payment mode.
3. The maximum profit amount should not exceed a certain ceiling amount to
avoid uncertainty and un-justice.
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4. Cash advance or cash withdrawal is prohibited from being allowed as a

financing, that is because it will be as same as loan that generates interest. A
solution for this issue can be by take the Qardhul Hasan contract.
2.2.2. Al-Ijarah and Ar-Rahn

The modus operandi of al-ijarah and ar-rahn model is provided in figure 2.
Figure 1: The Model of Al-Ijarah and Ar-Rahn
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Costumer Merchant
5 BANK
3
Wadiah Marginal RAHN
Deposit Facility

Islamic Credit Card
Descriptions:
1. Customers pledge their assets to the bank contract of ar-rahn. The bank can
use the asset now.
2. The bank leases back the asset to the customer contract of al-ijarah.
3. The bank disburses the advance money to ar-rahn into a deposit account
known as “Wadiah Marginal Deposit”.
4. The credit card reflects the revolving balance of the wadiah marginal Deposit
account.
5. The credit card issues the use of the balance available in the wadiah marginal
deposit account.
6. The customer makes a credit purchase from the merchant.
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7. The merchant transfers his right to claim the debt to the bank contract of
hiwalah al-mutlaqa.
Some issues about this model:
1. The bank can lease out the asset which is a pledged to the lessee who is the
originally a pledged asset.
2. In ijarah contract, the bank becomes the leasor and the customer becomes the
lessee. Therefore, banks will have to bear the cost of maintenance of the asset.
However, in ar-rahn the customer is responsible for the maintenance of the
asset. It means the cost of the asset will fall back to the customer.
3. Ar-Rahn contract should sign first before the ijarah contract; otherwise it
would violate the principle of “Al-Ghunm bil Ghurm”.
4. In this transaction, the structure looks as a loan which makes the profit that the
bank makes interest (riba).
5. There are too many contracts making it quite difficult with the legal
documentation and contract signing.
2.2.3. Bay’ Al ‘Inah and Wadi’ah

The modus operandi of bay‟ al „inah and wadi‟ah model is explained as follows:

1. The bank sells its asset to the customer on a deferred repayment basis.
2. The bank buys back the asset on cash at lower price; whereas bank gets profit
from the different amount customer which has cash advanced.
3. The bank buys out the cash proceeded from the buy back into marginal deposit
which becomes the credit limit for the customer.
4. An Islamic credit card will be created for the customer
5. The credit card is issued for the customer to be used.
6. The customer makes the purchasing from the merchant.
7. The merchant transfers his right to claim the debt to the bank (contract of
hiwalah al-mutlaqah).
8. The customer settles his outstanding balances which make his line of the credit
to be revolved.
For overall, the modus operandi of bay‟ al „inah and wadi‟ah model is provided in
figure 3.
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Figure 3: The Model of Bay’ Al ‘Inah and Wadi’ah
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Costumer Merchant
1 8
7
2
5 BANK
3
Wadiah Marginal RAHN
Deposit Facility
Islamic Credit Card
Some issues about this transaction:

1. There are a lot of issues surrounding al-„inah contract that makes „inah

structure becomes unviable.
2. The amount of money that customer will be paid from “cash sell back” as a
wadiah in his saving account to forms his credit limit and the profit shall be
based on using of such fund which will generate interest (riba).
2.2.4. Murabahah Credit Card Model

The final structure to be analyzed here is based on the contract of al-murabaha which
is provided in figure 4. The descriptions of this model are:
1. The bank appoints the customer as a purchasing agent on behalf of the bank.
In murabah contract, the seller requires to be in the ownership of the asset
which will be sold even for a moment.
2. The customer makes a credit purchased from the merchant on behalf of the
bank. So, the bank is the owner of the asset.
3. The bank as the owner of the asset remits payment to the merchant.
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4. The customer then makes the purchasing from the bank and makes his
repayment on a deferred basis.
Figure 4: Murabaha Credit Card Model
2
Customer Merchant
4
1 3
BANK
Some issues about the model:

1. Murabaha is a contract between the buyer and the seller. Thus, the seller must
be a legal owner of the asset. This is because it will be used to justify the profit
margin.

2. The seller must disclose the cost price. That is because this contract is a part of
the trust sale.
3. The customer shall give an extension to the repayment period to the bank.
4. The seller must be a valid owner of the asset. That is way the bank appoints
the customer as a form of legal trick which is debatable.
3. The Practice of Islamic Credit Card in Malaysia

Actually, some Islamic banks in Malaysia nowadays issue Islamic credit card using
certain contracts such as Bay al inah, wadiah, qard al hasan and ujr. There are no
controversial among scholars regarding the using of Islamic credit card which uses the
non-debatable contracts such as wadiah, qard al hasan, murabahah and ujr. However,
Islamic credit card especially which uses a controversial contract; i.e bay al inah is
still debatable among Islamic scholars.
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3.1. Islamic Credit Card in HSBC Amanah
On April 2009 HSBC Amanah Malaysia Bhd has issued Islamic credit card named
MPower Credit Card-I which has two kinds. Those are MPower Visa Credit Card-I
and MPower Visa Platinum Credit Card-i. Musa Abdul Malek, Executive Director
and Chief Executive Officer, HSBC Amanah Malaysia on HSBC Amanah (2009)
claimed that the MPower Credit Card-i has successfully attracted cardholders ranging
from new customers as well as existing customers of HSBC.
Details of MPower Credit Card-I According to the Interview Results with Asst.
Prof. Dr. Rusni Hassan
Today, the importance of people on credit card is high. Considering about
convenience of spending in terms of safety, it is not safe to bring a lot of cash money.
For short reason using credit card is considered convenience and security for the
client. In the conventional bank, the transaction basically was a lending and
borrowing. When customer used credit card meaning customer borrowed some money
bank then charge certain interest, which was regardless part element of riba. As a
muslim, it is better not to use this conventional credit card. But when customer did not

have any option, customer should pay all of his debt on time to eliminate the element
of riba itself. In this situation, there is no riba trigger. However, there is a few of
scholars avoid it. But, the customer must very much pay attention on the due date of
the monthly payment. Contrary in the case that if the muslim customer has option
when there is an islamic credit card, it is the social obligation for him as a Muslim to
take up and support the shariah compliant Islamic credit card rather than the
conventional one. She said, “Who else will support the Islamic ones, if not us, as a
Moslem”.
There was no shariah issue on Islamic credit card as a medium of payment.
How the payment is made, did not matter as long as it was a shariah compliant. The
issue that will come to picture was either the credit card owner, the one that issue the
sell (bank) was paying or not. Here, credit card owner paid the sale on behalf the
credit card holder (customer), under the wakalah concept.
Some Islamic credit card practice in Malaysian Islamic bank use bay al-„inah
on their concept. However, HSBC Amanah Malaysia Berhad use combination of
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qardhul hasan and ujrah concept as the structure of Islamic credit card payment,
whereby, it is because of the controversial of bay‟ al-„inah, and innovation for the
HSBC Amanah Malaysia Berhad behalf. When the customer purchases an asset on
market using this Islamic credit card issued by HSBC Amanah, it means that bank
lends certain money to card holder (customer) under the qardul hasan contract. Then
on prior or on the due date of monthly payment, card holder must pay the entire loan
amount that lend to bank. Besides, card holder must pay fee to bank under the ujrah
contract. If the card holder does the late payment, customer has to pay ta‟widh 1 %.
HSBC Amanah Malaysia Berhad as a commercial institution, provide MPower
Visa Credit Card-i and MPower Visa Platinum Credit Card-i for the type of its Islamic
credit card, in which the qualified of it depends on level of income. Recently, HSBC
Amanah Malaysia Berhad used a block of usage. Islamic credit card just used in a
place not for ribawi things such as alcohol, gambling, etc. And user for HSBC
Amanah Malaysia Berhad islamic credit card almost 100, because it is more flexible
for client.
Besides, conventional credit card was prohibited because it was practicing
riba. On the other hand, Islamic credit card was not. But it did not mean that Islamic
credit card might not charge some amount of fee. Main different between shariah and

conventional law is the underlying contract. Even though, shortly the charge of fee
and interest was look similar, but, actually they were two different things. For
example, the practice of riba, if A lend B money RM 100, then B pay A back rm 110.
However, the practice of profit is like this. Let A want to buy an asset from B, while B
bought the asset only RM 50, but B might sell it to A in RM 80. It was B’s profit RM
30. Under islam there was no harm of muslim charging certain profit. If the contract is
good (under shariah compliant), one might charge customer certain profit (i.e sale and
ujrah). Another issue that came to picture is about how much the bank should charge
the profit. Many of Islamic bankers have perspective that the charge of profit or fee
issued by bank or other Islamic financial institution must be low or cheap. In this case,
people should related to the term of, the profit was charging on what basis. Islamic
banking and finance institution is banking/commercial institution. Legally speaking,
they were charge profit for these reasons:
1. they are establish for commercial purposes not the social purposes
2. the share holder (i.e. muslim people) demanding better profit.
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Besides, on Islamic law, there was no Islamic sources explained that it is avoidable to
take much profit. Thus, Islamic banking and finance might charge fee and profit to
their customer.
Modus Operandi of MPower Credit Card-i

Farook (2009) explains that Islamic credit cards that use the Ujr model can be
regarded as the simplest form out of all of the other structures that are currently being
used. In essence, the Islamic bank guarantees the payment of customer’s purchases
and charges a fixed fee for this service.
The Ujr based card lets customers spend beyond their available cash, where
technically HSBC Amanah purchases the item for them and pays the vendor. The
customer is indebted to the bank for the purchase amount which is provided as a
qardul hasan. The HSBC Amanah charges a monthly maintenance fee for the Islamic
credit card service or for letting customers hold an outstanding balance on the card
advance.
Figure 5: Skim of the M-Power Credit Card-i

1: Customer applies for Credit Card-I, upon
acceptance, agrees to pay stipulated annual fees
COSTUMER APPLICATION
AND APPROVAL (1)
HSBC PERIODIC PAYMENTS (4)

Customer
Amanah 4: Customer repays credit
extension and annual fees 3: Customer buys
2: HSBC periodically merchandise/
Amanah withdraw money
provides from Credit Card-I
facility to account as and
customer when required
Credit Card-i
CREDIT Account
FACILITY (2)
TRANSFER TO MERCHANT/
WITHDRAWL (3)
Merchant
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Each Credit Card-I will be charged an actual monthly management charge

which is calculated based on the Cardholder’s outstanding Current Balance of the
month remaining unpaid after the Due Date immediately following the relevant
Statement Date, consisting of retail transactions, and at the following rates:
a. Tier-I: 1.25% per month (equivalent to 15% per annum) of the outstanding
Current Balance, if the Cardholder promptly settles the Minimum Payment
Due as specified in the Card Statement for 12 consecutive months;
b. Tier-II: 1.42% per month (equivalent to 17% per annum) of the outstanding
Current Balance, if the Cardholder promptly settles the Minimum Payment
Due as specified in the Card Statement for 10 months or more in a 12-month
cycle; and
c. Tier-III: 1.5% per month (equivalent to 18% per annum) of the outstanding
Current Balance, if the Cardholder does not fall within Tier-I and Tier-II.
Retail transactions exclude Cash Advance, Balance Transfer and any other
credit plans.
Issues of Credit Card-i

There is no certain shariah issues related with the contract used by MPower Credit

Card-i. This is because MPower Credit Card-I uses ujr contract which is already
globally accepted by Muslim’s scholars.
By using this contract, MPower Credit Card-I has been success since it was
launched. According to the news released in September 2009, HSBC Amanah
Malaysia Berhad recently succeeds to touch more than 50,000 credit cards in
circulation. The Islamic Bank reached the 50,000 cards mark in July 2009, less than a
year since the MPower Credit Card-I was introduced to the market.
The success of MPower Credit Card-I to attract cardholders ranging from new
customers as well as existing customers of HSBC is because of several factors. Those
are a strengthened sale and marketing team, enhanced customer service strategy and
platform, and ultimately, customers’ trust and preference in using HSBC credit cards.
MPower Credit Card-I also has some unique features. One of them is that it is
a cash back credit card, which earns the cardholder cash bank of 0.5% for retail
purchases for Gold and Platinum Credit Card-I which will be credited to the card on a
monthly basis. Moreover, Platinum Credit Card-I customers also enjoy 1.0% cash
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back for overseas retail purchases. Given the HSBC Group’s extensive network
globally, the MPower Credit Card-I is also recognized at cover 19 million
establishments worldwide. In addition, HSBC Amanah recognizes the various
financial requirements of its customers and, as the world’s local bank, it ensure that
HSBC Amanah provides them with a full suite of shariah-compliant financial
solutions to cater to their individual needs.
3.2. Islamic Credit Card in Bank Islam Malaysia Berhad
Bank Islam Malaysia Berhad is one of some Islamic banks in Malaysia which issue
Islamic credit cards using bay al inah as a contract. Bank Islam Card (BIC) issued by
Bank Islam Malaysia is the first Islamic credit card in Malaysian market. It is also the
first credit card in Southeast Asia adopting the Europay-Mastercard-Visa (EMV)
Smart Card with the “chip” technology (Ferdian, et. al, 2008).
Details of the Bank Islam Card (BIC)

As other Islamic credit card, the holders of the Bank Islam Card are only permitted
carry out halal transactions which exclude transactions related with six categories that

do not meet shariah requirements. These categories are bars, discos, night clubs,
purchase of beers, escort and massage services, and gambling. Operation of BIC
involves three contracts, namely bay al inah, wadiah and qard al hasan. The figure
below shows the scheme of BIC.
Farook (2009) describes that in BIC, the Bank Islam engages in a number of
contracts with the customer in several stages:
1. In the first instance, a commodity owned by the bank is sold to the customer at
an agreed piece through installments for a certain period of time whenever a
customer BIC application is approved.
2. The Bank Islam then re-purchases that same amount of the commodity from
the customer at a lower price, where the amount acts as the credit limit.
3. The Bank Islam disburses the proceeds of the sale of the commodity owned by
the customer to a wadiah (safe custody) account maintained by the bank.
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4. This account provides the cash from which the customer can withdraw funds
or pay for purchases just like conventional credit cards, the difference being
that there is real cash backing up the credit facility.
Figure 6: Scheme of BIC
Stage 1. Bank sells customer commodity for deferred payment for price
equivalent to credit limit + total profit (subject to credit approval)
DEFFERRED PAYMENT TO BANK (1)
COMMODITY TO CUSTOMER (1)
CUSTOMER BIMB
COMMODITY TO BANK (2) Stage 4.

Customer buys
Stage 2. Customer sells back commodity to bank commodity/
for cash payment for price equivalent to credit limit withdraw money
Stage 3. Cash deposited to customer Wadiah from Wadiah
Account account as and
when required
CASH TO
WADIAH

A/C (3) WADIAH
A/C
WITHDRAWL (4)
Merchant/
ATM
Besides paying the installments of the purchase of the commodity, the

customer also pays a certain amount of management, equivalent to the annual
membership fee of a conventional credit card.
Issues of BIC
The BIC becomes controversial among Muslim scholars due to its bay al inah
contract. This is because bay al inah itself is still debatable and majority of Muslim
scholars are already forbidding it.
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According to al-Suwaylim (2008), those who reject bai al inah are scholars of
Imam Abu Hanifah School, Imam Hambali, Imam Malik and Imam Ahmad and some
Shafiites. Hanafi’s jurist rejects bay al inah because it is deemed as a contract which
is apparently allowed but it leads to an unlawful practice according to shariah (riba).
In addition, Hambali and Maliki assert that bay al inah is not valid due to the intention
of the parties. In the case of the BIC, the motive of the parties is to get the loan.
Hence, this contract becomes invalid.
On the other hand, Bouheraoua (2009) describes that scholars who accept bay
al inah are Imam Shafii, Abu Yusuf, Abu Daud and Abu Thur. Bay al inah is a valid
contract because it consists of two independent sales contracts and not conditional
upon each other. In addition, the expression used to denote the permissibility of trade
is indicative of universality or generality, embracing all types of trade. Hence, bay al
inah is a form of trading would remain permissible as there is no evidence to establish
the contrary. Allah states in the Quran:
ۡ ‫وق ۡد فصَل لك َ ا ح َر ع ۡيك ۡ إ ََ ا‬

ۗ‫ٱضطر ۡرت ۡ إل ۡيه‬
“What has been prohibited on you has been described to you” (Al-An`am: 119).

In this difference opinion among scholars about bay al inah, Malaysian’s
jurist allowed the use it. This is because the Islamic banking and financial today needs
to adopt some controversial contract such as bay al inah in order to avoid riba based
loan. Besides that, according to a fiqh maxim, when people face between two evils,
they can choose the lesser one. Moreover, the Bank Negara Malaysia confirmed that
controversial products will only used temporary and Malaysian’s scholars must
maximize their efforts to develop the better shariah compliant products in the future.
4. The Practice of Islamic Credit Card in Indonesia

The practice of Islamic credit card in Indonesia is quite different with Malaysia. This
is because the contracts used in Islamic credit card are already decided by Dewan
Syariah Nasional Majelis Ulama Indonesia (National Syariah Council) with the
issuance of fatwa No: 54/DSN-MUI/X/2006 concerning “Syariah Card”. On this
fatwa, the council stated that Islamic credit card or Syariah Card is built based on
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three contracts: kafalah (guarantee), qardh (loan) and ijarah. Thus, all Islamic credit
cards issued in this country must follow contracts which are already prepared.
According to this fatwa in Safrudin (2007), the general rules of Islamic
(Shariah) Credit Card in Indonesia are:
a. Shariah Credit Card has the same function with credit card that has a lawful
relationship a between parties in any established jurisdiction, based on the
principles of shariah.
b. The parties involved are the card issuer (mushdir al-bithaqah), card holder
(hamil al-bithaqah) and card acceptance/ merchant (tajir or qabil a-bithaqah).
c. Membership fee (rususm al-„udhwiyah) is the payment for using the services
of card issuer.
d. Merchant fee refers to the fee given by the merchant to the card issuer as the
payment (ujrah) of being the agent service (samsarah), marketing (taswiq) and
billing payment (tahsil al-dayn).
e. Cash withdrawal fee is the payment for using the facility of cash withdrawal
(rusum sahb al-nuqud).
f. Ta‟widh is compensation payment for the card issuer resulting from card
holder late payment.

g. The late charge fee is the late payment cost to be charged to the cardholder
which will be given to charity.
In Indonesia, Syariah Division of Bank Danamon (PT Bank Danamon Tbk) is
the first Islamic bank in Indonesia which is launching “Dirham Card”. Therefore, this
paper would like to concern to its product.
Details of the Dirham Card

Antara (2007) describes that Dirham Card is an Islamic credit card which is a
collaborate product between Bank Danamon and Master Card with all networks or
merchants thought the world to provide payment services to card holders.
Dirham Card uses three contracts: kafalah, qardh and ijarah. On the ijarah
scheme, the card issuer acts as the provider of payment and service system for the
card holder. For the provision of this service, the card holder is charged a membership
fee. Meanwhile, in the kafalah transaction scheme, Bank Danamon Syariah as card
issuer, acts as the guarantor (kafil) for the card holders against the merchants, of all
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obligations to pay (dayn) which arise from the transactions between card holder and
merchant, and/or cash withdrawal from banks other than the ATM of the bank issuing
the card. Based on kafalah, the card issuer can accept a fee (ujr kafalah). Under the
qardh scheme, the card issuer acts as the lender (muqridh) to the card holder
(muqtaridh) through the cash withdrawal from the bank or ATM of the card issuing
the bank. The card holder is therefore obliged to return the same amount of funds he
withdrew at the time.
Figure 7: Scheme of the Dirham Card
1: On the ijarah scheme, customer applies for Dirham Card,

upon acceptance, agrees to pay stipulated annual fees
COSTUMER APPLICATION
AND APPROVAL (1)
Bank PERIODIC PAYMENTS (4)

Danamon Customer
Syariah 4: Customer repays credit
extension and annual fees 3: Customer buys
periodically merchandise/
withdraw money
from Dirham Card
2: Bank Danamon Syariah account as and
provides facility to customer when required
under kafalah scheme; Bank
gets a fee (kafalah bi ujrah)

Dirham Card
Account
CREDIT
FACILITY (2)
WITHDRAWL UNDER QARD
SCHEME (3)
Merchant
Issues of the Dirham Card

Some customers argue that the Dirham Card is more expensive than the conventional
credit card. By using the Dirham Card, the customer must pay 10% form the limit
credit amount at the beginning of transaction as “a goodwill investment”. Whereby,
the limit credit amount which is decided by Bank Danamon Syariah is Rp5 million
until Rp40 million. The cardholders are compulsory to have a saving in Bank
Danamon Syariah at least Rp500.000,-. If the cardholder pays over the due date, they
19
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will be imposed two kinds of compounds. Those are a ta‟widh and a 3% form the
balance account as the late charge fee. In addition, customers must pay a monthly fee,
(3.25 – 3.5) % and this fee is as same as the amount of interest in the conventional
credit card.
5. Islamic Credit Cards in Malaysia and Indonesia: Problems,

Opportunities and Challenges
Islamic credit cards practiced in Malaysia face different problems, opportunities and
challenges with in Indonesia due to the differences between the customer’s behavior
and the rule used in the each country.
The credit card becomes an essential mode of payments in today’s Malaysian
society. This is because that the demand of credit cards in Malaysia nowadays is more
increasing because the needs of making payment in large purchases and in internet
purchases become larger (Dali and Hamid, 2007).
This condition can be large opportunities for the Islamic banking and finance
in Malaysia to develop their Islamic credit card to be a viable alternative solution for
Muslims to transact. The information technology (IT) infrastructure and the good

system architecture must be built properly as the prerequisites of the successful of the
Islamic credit card. Furthermore, the contract which is still debatable among Muslim
scholars such as bay al inah should be avoided especially when there is already
another contract which is success to be practiced in Islamic credit card today, i.e. ujr.
In Indonesia, Islamic credit cards face some problems regarding the problem
of high costs and the strategy of promotions. People are still not understanding well
about the concept of Islamic credit cards. They only can compare with conventional
credit card whether Islamic credit card gives more advantages or not. Therefore, in
launching the Islamic credit card, resolute attention must be paid to the promotional
agenda to extend that it should be pompous and grand not merely to create awareness
but also should attempt to bring in immediate “coverts”.
Sultan (2001) argues that this is because, if promotional campaigns are
focused merely to create awareness, the idea enters into the “black box” of the
customer and takes a long time to trigger them to go and get one of those cards. Thus,
20
Indonesia
the campaign should be focused to prompt the customers to get is on impulse and let
them do the mouth-to-mouth campaign for the issuer, which eventually is cost-
effective for the issuer. Towards that end, a mass media advertisement campaign
might just not be it. It must be followed by road shows, reward campaign, door-to-
door campaigns by the direct sales team members and also Islamic credit card clinics.
Although Islamic credit cards in Indonesia do not face the shariah issues
regarding to its contract because kafalah, qard and ijarah are contracts which are
already accepted globally by the Muslim scholars, it still face the shariah issue
regarding the opinion that Islamic credit cards are not different with conventional
credit cards. This is because the Islamic credit card still includes “implicit” riba in its
scheme. The bank only changes the interest with the term of “administration cost”.
So, the implementation of “administration cost” is like interest charge in conventional
credit cards, but with the different term.
In addition, some Indonesian Muslim scholars reject the issuing of Islamic
credit card because the credit card is same as a debt, whereas the debt is one thing
which is not recommended in Islam. In Islam-economy (2009), it is explained that this
refers to many traditions narrated by Bukhari whose contents people who have debts
always tell lie and are never kept their word. Therefore, the Prophet Muhammad

p.b.u.h. himself always prays to avoid the debt and in Qur’an, al-Baqarah:280, Allah
SWT says that:
“if the debtor is in straitened circumstances, then postponement to ease; and
that ye remit the debt as alms giving would be better for you if ye did but
know”.
Actually, the debt is allowed in a very forced situation and the added debt
must be repaid as soon as possible. Whatever types of transaction used in Islamic
credit cards, the substance remains to advise people in debt. So, this underlies why
Islamic credit cards may not be a shariah.
Moreover, the presence of Islamic credit card can encourage people to
consume more. This is because the function of Islamic credit cards is same as other
credit cards. Faber and O’Guinn (1988) explained that the most obvious reasons for
credit problems are come from people unprepared to meet their existing credit
obligations. Moreover, due to the increasing of credit card debts, the inflation of
America became doubled in the mid-December 1997. This was because credit cards
21
Indonesia
spurred people to continue their consumption of un-needed goods only to avoid loss
of credit card fee burden.
Nevertheless, Islamic credit cards have some benefits for Muslims especially
in the urgent conditions. For example, if someone wants to buy an airline’s ticket at a
lower price now, but he does not have enough account in his debit card and he can
expect that he will receive some incomes in the next month, he can transact by using
the Islamic credit card. First, he does not loss the opportunity to get the lower price of
his ticket. Second, he can avoid a riba. Third, he can participate in the developing of
the economy riba free which is very necessary to increase the economy of ummah
With regard to the consumerism matter, the Islamic bankers can maximize
their policy which can avoid that. Mechanism to offer Islamic credit cards only for
persons who have certain level of income should be applied. Thus the use of the card
can be supported with the ability to pay. Furthermore, this policy can reduce credit
risks faced by any Islamic banks which issue Islamic credit cards (Ferdian, et,al,
2008).
Islam encourages yudfa „asyaddu adh-dhararyn, the intention is that the
transaction may be allowed initially banned on the grounds when there are no other
choices and to take things on the less dangerous. For example, Muslims can buy

books at the online store which is the payment method is using credit cards if there are
no other stores providing those books. But, if they can find a one store which is
selling that book, this store should be prioritized.
Finally, Islamic credit cards must be developed properly and the attitude of the
customers must be controlled well when they use this product. Muslims must have a
scale of priorities in their daily life which is appropriating with Islam. They must
classify their needs wisely according to the level of maqasid al-shariah: dharuriyat
(primary), hajjiyat (secondary) and tahsiniyah (tertiary). Thus, the developing of
Islamic credit cards in Malaysia and Indonesia can be done well and can fulfill the
maqasid al-shariah of the ummah themselves.
.
6. Conclusion
The development of Islamic banking and finance encourage Muslim scholars to create
products which help Muslims to avoid riba including the issuing of Islamic credit
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cards. In the case of Malaysia and Indonesia, Islamic credit cards get many attentions
from academicians, syariah councils and practitioners. Actually, the Islamic credit
card is still debatable among Muslim scholars regarding its contracts and its
effectiveness to fulfill the maslahah. The contract which is still controversial such as
bay al inah used by Bank Islam Card (BIC) should be avoided in the practice of
Islamic credit cards. On the contrary, contracts which are globally accepted by
Muslim scholars such as ujr practiced by MPower Credit Card-i, and kafalah, qard
and ijarah practiced by Dirham Card can be developed in this product. Due to the
success of MPower Credit Card-I by using ujr as its contract, it is better that other
Islamic banks can imitate the way of HSBC Amanah to promote its Islamic credit
cards. Moreover, because the practice of Islamic credit cards in Malaysia is faster and
more attractive than in Indonesia, the Indonesian Islamic banks can make Malaysia as
a role model in the practice of Islamic credit cards.
Moreover, in spite of the issue about the consumerism, Islamic credit cards
must be used wisely and the credit issuers must have the rules to control it such as
giving the limitation of credits and making the feasibility study regarding to the
applicants properly.
In addition, due to the important of Islamic credit cards today, the innovation

is very necessary to increase the quality and quantity of this product, for example by
increasing the IT used and promoting Islamic credit cards to the Muslims as well.
Regarding to the promoting of this product, it is important to campaign that Islamic
credit cards do not encourage Muslims to spend their money to the unneeded goods,
but to spend their money to the spending that really needs credit cards to make the
transaction becomes easier. Thus, by using Islamic credit cards, Muslims can attain
live scales and the principle of maslahah can be attained.
7. Bibliography
Al-Suwaylim, Sami ibn Ibrahim. 2008. “Tawarruq Banking Products”. Accessed on
December 18, 2009. [Available at http://isra.my/media-
centre/downloads.html?task=finish&cid=88&catid=20&m=0]
Antara. 2007. “Bank Danamon Launches Dirham Card”. Viewed on March 10, 2010.
<http://www.antara.co.id/en/print/?i=1184819311>
Asst. Prof. Dr. Rusni Hassan, a shariah advisor on HSBC Amanah Malaysia Berhad
23
Indonesia
Bakhshi, Adil Manzoor. 2006. “Developing of Financial Model for Islamic Credit
Card for UK”. Viewed on March 12, 2010. <
http://www.kantakji.com/fiqh/Files/Finance/223.pdf>
Billah, Mohd. Ma’sum. “Islamic Credit Card in Practice”. Viewed March 13, 2010.
<http://www.islamicmortgages.co.uk/index.php?id=262>
Bouheraoua, Sa’id. 2009. “Tawarruq In The Banking System: A Critical Analytical

Study Of Juristic Views On The Topic”. Accessed on December 18, 2009.
[Available at http://isra.my/media-
centre/downloads.html?task=finish&cid=86&catid=20&m=0]
Dali, Nuradli Ridzwan Shah Bin Mohd and Hanifah Abdul Hamid. 2007. “A Study on
Islamic Credit Cards Holders”. Proceeding of National Conference on Islamic
Finance (NCiF 2007) Organized by the Faculty of Business Management and
Accountancy, University Darul Imam Malaysia
Faber, RJ and O’Guinn, TC. 1988. “Compulsive Consumption and Credit Abuse”.
Journal of Consumer Policy, Vol. 11: 97-109
Farook, Sayd. 2009. “Innovating Islamic Plastic: A Value Added Socially

Responsible Alternative”. Journal of Oxford Islamic Finance Dar Al-Istithmar
Ferdian, Ilham Reza, et., al. 2008. “The Practice of Islamic Credit Cards: A
Comparative Look between Bank Danamon Indonesia’s Dirham Card and
Bank Islam Malaysia’s BI Card”. Proceeding of IAEI International

Conference, Surabaya, Indonesia
HSBC Amanah. 2009. “HSBC Amanah Malaysia Achieves More Than 50,000
Islamic Credit Cards”. News Release on September 4, 2009
Islam-Economy. 2009. “Islamic Credit Card, between Allowed and Forbidden”.

Viewed on March 8, 2010. <http://islam-
economy.blogspot.com/2009/10/islamic-credit-card-between-allowed-
and.html>
Safruddin. 2007. “Shariah Credit Card – the Structure and Usage”. Viewed on March
10, 2010. <http://safruddin.wordpress.com/2007/08/04/dirham-card-kartu-
kredit-syariah-pertama-di-indonesia/>
Sultan, Syed Alwi Mohamed. 2001. Islamic Credit Card: A Framework of

Implementation in Malaysia. Thesis Collection of International Islamic
University Malaysia

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ISLAMIC CREDIT CARD IN MALAYSIA Jadi-Libre

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Islamic Credit Card: A Comparison Study between Its Application in Malaysia and

ISLAMIC CREDIT CARDS:

Islamic Banking Systems and Operations

Islamic Banking Systems and Operations

Islamic Banking Systems and Operations

Table 1: Differences between Islamic and Conventional Credit Card

No money lending because transaction Money lending because the

Non compounding of profit. Profit Compound of profit based on the

Islamic Banking Systems and Operations

2.2.1. Al-Hiwalah al-Mutlaqah, Qardhul Hasan and Ujr

Figure 1: The Model of Al-Hiwalah al-Mutlaqah, Qardhul Hasan and Ujr

Source: Sultan (2001)

Islamic Banking Systems and Operations

4. Cash advance or cash withdrawal is prohibited from being allowed as a

2.2.2. Al-Ijarah and Ar-Rahn

Figure 1: The Model of Al-Ijarah and Ar-Rahn

Islamic Banking Systems and Operations

Source: Sultan (2001)

2.2.3. Bay’ Al ‘Inah and Wadi’ah

Islamic Banking Systems and Operations

Figure 3: The Model of Bay’ Al ‘Inah and Wadi’ah