A Study of Shariah-Compliant Credit Cards in Islamic Banking: The Applicable Structures and Practices in Malaysia

Islamic Credit Cards (ICCs) have emerged as a key product within the Islamic financial system. The development of ICCs have evolved from the Bay' al-'Inah and Qard-Ujrah structure to the Tawarruq model. The transition demonstrates the continuing evolution of Islamic banking products which aims to ensure Shariah compliance while offering competitive products. This study focuses on the framework governing ICCs in Malaysia where it aims to examine the extent to which the ICCs operation is in line with Shariah as well as the underlying objective of Maqasid al-Shariah. Additionally, the study adopts a qualitative doctrinal approach where the researchers have examined the relevant primary and secondary sources in conducting the research. The study further demonstrates that with the transition to Tawarruq-based, various Shariah issues concerning ICCs arising from the previous models are being addressed. Nevertheless, despite the attempt to produce a credit card which balances Shariah compliance and product competitiveness, scholars highlight that there exist practical challenges and limitations within the operation of the model. These challenges include the issue on profit rate, revolving credit facilities and the limitation of Merchant Category Code (MCC) filtering in mixed-revenue merchants. The study further highlights that Shariah compliant alone does not guarantee that the broader objective of promoting responsible financing while eliminating riba’ can be achieved. Hence, although this paper examines the governing framework of ICCs, behavioral issues and financial illiteracy remain as ongoing challenges. Therefore, this study highlights Malaysia's accomplishment on the creation of Shariah-compliant credit cards while identifying areas for further improvement.

Shariah-compliant credit cards, Islamic Credit Cards (ICCs), Islamic banking, Tawarruq, Malaysia

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