Cenbank issues first Islamic credit card guidelines

Bangladesh Bank has issued the country's first guideline for operating Islamic Credit Cards (ICC), allowing Islamic banks and Islamic windows of conventional banks to offer Shariah-compliant credit cards under specified models.

Issued on Sunday, the guideline requires banks to avoid riba (interest), maysir (gambling) and gharar (uncertainty) and follow specified Shariah-compliant structures for ICC transactions.

Banks can offer ICCs under two models. The Qard Hasan with Ujrah Model, mainly for unsecured cards, treats merchant payments and cash withdrawals as Qard Hasan, or interest-free loans. Customers must repay only the principal, while banks cannot charge interest or profit on the loan.

Banks may charge Category B Ujrah or service fees for card issuance, account management and payment-network services. Such fees cannot exceed the bank's actual direct costs, include any profit, or vary based on the outstanding loan, tenure or payment delay.

The Covered Card or Cash-Collateralised Card Model allows cards against cash deposits or other collateral. As transactions are settled from the cover, no Qard Hasan is created. Banks can therefore charge Category A service fees, which may include a profit element. Fees must be fixed according to the card type and cannot vary with the credit limit or deposit amount.

Banks must introduce automated Merchant Category Code (MCC) filtering to block Shariah-non-compliant transactions, including those involving alcohol, gambling, conventional insurance, pork processing and interest-based financial services. 

The Shariah Supervisory Committee must approve the prohibited MCC list and monitor its implementation, with the system audited at least annually.

The guideline also sets rules for Late payment fee. A fixed fee may be imposed on a financially capable customer who fails to pay on time as a deterrent under Iltizam bi al-Tabarru'. 

The fee cannot be treated as bank income and must be deposited into a separate Charity Account for approved charitable activities under the Shariah Supervisory Committee's supervision.

Bangladesh Bank Islamic Banking Regulation & Policy Department Director Anisur Rahman told The Business Standard that despite the popularity of Islamic banking, there had been no specific guideline for Shariah-compliant credit cards, limiting banks' ability to expand in the segment.

Former Islami Bank Bangladesh additional managing director Mohammad Jamal Uddin Mazumde welcomed the move, saying there had been no central guideline. 

He said the bank already offers the Shariah-compliant 'Khidmah' credit card with good customer demand, but its Ujrah model allows only processing and service fees, while operating costs can be high.