Are credit cards Haram in Islam? Credit cards are considered not allowed because when you get one from a bank, they make you sign a contract. If you don’t pay back what you owe on time, you have to pay high interest rates, which is not fair or right according to Quran and Islamic Finance.
If a credit card charges high interest on the money you borrow, it’s not allowed in Shariah. Even if you pay back what you owe before they charge interest, using a credit card that involves interest is not allowed in Islam.
Credit cards are Haram because when you use them, the bank lends you money, but then you have to pay them back with extra money called interest. This interest is like a fee you have to pay for having the credit card, and if you’re late in paying back what you owe, you have to pay even more to the bank.
This extra money you pay is called riba, and it’s not allowed in Islam. Even if you try to pay back on time, if something happens that stops you from doing so, you still have to pay this extra money.
It’s not right for a Muslim to agree to something that goes against what Allah has said is wrong. Even if you think you’ll be able to pay back on time, circumstances can change, and you might not be able to. So, getting into this kind of agreement is not allowed.
Imam Ali (ع) once said: “He who has no patience with small matters will never acquire the patience for great ones, and he who fails to resist the lure of small expenses will succumb to the temptation of extravagance.”
Why are credit cards haram in Islam?
In Islamic finance, the relationship between the bank and the customer is often structured as a partnership based on shared risk and profit. Unlike conventional banking, where the bank lends money to the customer and charges interest, Islamic finance operates on principles that prohibit riba (interest) and promote fairness and ethical conduct.
Psychological Impact of conventional Credit Cards
The secret mental impacts of credit cards from regular banks aim to earn money from people’s pockets. If you step back and look at the whole situation, you’ll notice it’s mostly the bank encouraging fancy lifestyles, expensive watches, cars, and more.
This lifestyle is designed by banks to tempt people into spending more and becoming controlled by them. In Islam, the focus is on the well-being of individuals, their families, and society altogether.
One Quranic verse that relates to moderation in lifestyle is from:
“Eat and drink, but waste not by extravagance, certainly He (Allah) likes not Al-Musrifun (those who waste by extravagance).”
| Why Credit Cards are Haram (According to Quran and Islamic Finance) | Why Banks Sell Credit Cards and How They Make Money |
|---|---|
| 1. Charging or paying interest (Riba) is Haram in Islam. | 1. Banks sell credit cards to generate revenue through interest charges on balances carried over from month to month. (Imagine big picture) |
| 2. Encourages unnecessary spending and extravagance. Contrary to the principle of moderation in Islamic finance. | 2. Banks make money through various fees such as annual fees, late payment fees, brands partnerships, and transaction fees. |
| 3. Leads to debt accumulation and financial burden. | 3. Banks often offer rewards programs to attract customers and encourage credit card usage. |
| 4. Can lead to inequality as those with high interest rates suffer more. | 4. Credit cards serve as a tool for banks to deepen their relationships with customers and cross-sell other financial products. |
| 5. Can promote a materialistic lifestyle contrary to Islamic teachings. Which diverts attention from fulfilling Islamic obligations such as Zakat and Khums. | 5. Banks benefit from credit card usage as it increases transaction volume, earning them interchange fees from merchants. |
| 6. Creates dependency on loans and interest-based financing. Contrary to Islamic principles of equity and fairness. | 6. Banks also profit from customers who carry balances and pay interest, thus contributing to their bottom line. |
| 7. Excessive focus on rewards may divert attention from fulfilling Islamic obligations. | 7. Banks may offer promotional incentives to attract new cardholders, further increasing their customer base. |
| 8. May lead to unethical behavior such as defaulting on payments. | 8. Banks use credit cards as a means to establish a long-term relationship with customers, potentially leading to more lucrative banking services in the future. |
| 9. Discourages responsible financial behavior and saving. | 9. Credit card marketing strategies often target young adults and students, aiming to establish lifelong customers. |
| 10. Can contribute to economic instability and inequality. | 10. Banks have a vested interest in encouraging credit card usage as it contributes significantly to their profitability and shareholder value. |
Shariah Compliant credit card?
Difference between Shariah Compliant Credit Card and Conventional Credit Card:
| Basis | Shariah Compliant Credit Card | Conventional Credit Card |
|---|---|---|
| Interest | No interest is charged on the Shariah Compliant Credit Card. | The interest rate may vary, depending on the outstanding amount. |
| Takaful Coverage | Many Shariah Credit Cards offer Takaful coverage to the cardholders. | It does not offer Takaful coverage. |
| Late Payment Fee | Fixed amount + 3% of outstanding amount, with the 3% typically donated to charity. | It charges a late payment fee plus retail interest rate on the outstanding amount. |
| Transaction Restrictions | The purchase of tobacco, gambling, casino, alcohol, pork, and other items is strictly prohibited (haram) using Shariah Compliant Credit Card. | Cardholders can purchase any item as there are no such restrictions. |
| Zakat Payment | Yes | No |
These differences highlight the distinct features and practices associated with Shariah Compliant Credit Cards compared to conventional credit cards.
What is the Islamic alternative to credit card?
Bay al-inah credit cards
Bay al-inah is a type of transaction where one person sells something to another person, but the payment is delayed. Here’s how it works:
Imagine you want to buy a phone from your friend, but you don’t have enough money right now. So, your friend agrees to sell you the phone for $100, but you’ll pay them back $120 in a month. That extra $20 is like a fee for borrowing the money from your friend.
So, in bay al-inah, one person sells something and gets paid later, but they end up paying more than the original price because of the delay in payment.
Tawarruq credit cards
Imagine you want to buy a new laptop, but you don’t have all the money right now. So, you go to a bank and they agree to help you out. Here’s how it works:
You tell the bank you want to buy a laptop, but you can’t pay for it all at once.
The bank says, “No problem!” They buy the laptop for you at a cost plus a little extra for their service.
You agree to pay the bank back later, but they give you some time to do it.
Now, you have the laptop, but you owe the bank money.
Here comes the twist:
Instead of waiting to pay the bank back, you decide to sell the laptop right away to someone else for cash. You get the cash immediately, and you use that money to pay back the bank.
So, tawarruq is when you buy something from the bank on credit, then quickly sell it for cash to pay back what you owe.
Wadiah account credit cards
You go to a bank and ask them to keep your money safe for you. The bank says, “Sure thing!” They create a Wadiah account for you. You can deposit your money into this account whenever you want.
It’s like putting your money in a safe at the bank. Or, if someone else wants to give you money, they can deposit it into your Wadiah account on your behalf. So, in simple terms, a Wadiah account is like a safe place where the bank keeps your money for you, whether you put it there yourself or someone else does it for you.
What does the Quran say about the credit?
In general, the Quran encourages responsible financial behavior and warns against excessive borrowing and debt. For example, in Surah Al-Baqarah (2:275-279), it advises against charging interest (riba) and emphasizes honesty and fairness in financial transactions.
Conclusion
Credit cards can make people spend money without thinking too much about it (Impulse spending). They can lead to buying things on a whim, spending too much, and getting into debt. This goes against Islamic Finance teachings about being careful with money and not being extravagant on buying stuff.
In Islam, it’s encouraged to only borrow money when you really need it, not just for things you want but don’t necessarily need. Islamic Finance teachings say it’s better to use credit for important things, like dealing with emergencies or buying things you truly need, rather than just for luxury items.
So, using credit cards for lots of shopping and buying things you don’t really need goes against Islamic principles of being careful with money and avoiding unnecessary debt.
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