Islamic Finance

Personal Finance: Credit Cards 39

they will not allow it. For example, selling knives is allowed in Islam, but in

some situations (eg. if the vendor is sure that the one who wants to buy the

knife is going to harm or kill someone withit) it is prohibited to sell knives.

The “liberal school” takes the opposite stance; if something is allowed,

then there is no need to look for a reason to prohibit it. If it isharam, they

will look and see if a need for it exists in society and find a way to make it

halal(permissible).

Both schools are acceptable in Islam. However, depending on the subject,

thefatwathat people will follow may differ. As stated before,ribameans

taking interest on loans and is something expressly forbidden in Quran. For

that reason, most Muslims prefer to go with the “conservative school” when

it comes to the issue ofriba.

Description of the six sources of revenue

Annual and subscription fee

Cards issuers claim that this fee is the administration cost for the card for

one year (that is why they make an annual charge). It is clear that this is

not the true cost, since they charge different fees for different types of cards

(eg. classic, gold, platinum, etc.) even though the administration overhead

is almost the same for all types of cards.

The “liberal school” allows banks to take any fee they like by saying it is

notriba; it is a fee for a service the bank or credit card issuer is providing to

the customer. However, the “conservative school” does not accept this

argument and rules that if a bank wants to charge for it, then it must be the

actual cost.

This latter view makes more sense. Take the case of someone who wants

to borrow an amount from a friend (eg. $100 in the form of traveler checks).

The lender needs to post it to the borrower and the post cost is $10, but the

lender decides to charge the borrower $45. Since the cost of the post is only

$10, this will be a clearribato give $110 and take $145.

Interest

Interest can be defined as “a charge for borrowed money, generally a

percentage of the amount borrowed”. Thus it is clear that banks and credit

card companies are not allowed to take interest, since it is pureriba,and

neither of the two schools allow it.

Penalties for late payments or overdraft amounts

These charges are also not allowed by both schools since asking for more

than the loan amount isriba. Even if the customer’s payments are late,

issuers should not take more than what they actually gave as a loan. Some