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Question
What is the Islamic stand about credit cards intended to be used for business in no interest transactions. However, when no cash is available, interest will be charged to the account. This might happen with any delayed payment of utility, installments and other bills.
Answer
All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad, sallallaahu ‘alayhi wa sallam, is His Slave and Messenger.
The use of credit cards for purchasing goods and then paying the price of purchase by installments to the bank or to the authorities that issued the card is, in fact, a form of loan from them to the card provider. Therefore, it is not permissible for the authority which issued the card to take more than the amount that the card holder bought the goods for. However, the authority which issued the card is permitted to take a fixed charge as administrative expenses, but such a charge should not be increased if the amount that is used for the purchase of goods is higher.
As regards imposing a percentage on the amount of money used by the credit card, then this is pure Riba (interest and/or usury), whether such a percentage is taken as a service charge and administrative expenses or for a delay in payment. Both forms are nothing but a loan with Riba and this is what is known as "Riba of debts" which is the most well-known form of Riba of the pre-Islamic era of ignorance.
In this concern, the Islamic Fiqh Committee issued its decision No.108 which reads:
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It is neither permitted to issue nor to deal with uncovered credit cards if they are conditioned on an interest even if the person who asks for the credit card intends to repay within the interest free period.
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It is permitted to issue uncovered credit cards as long as there is no condition that charges interest over the loan amount. There are two sub-points which arise from this:
a- It is lawful for the institution which issues the card to take a fixed charge when issuing the card or renewing it as actual fees for the service rendered by this institution.
b- It is lawful for the bank that issues the card to take from the trader a commission for the goods purchased by the customer provided that the selling of the trader by card is the same price as that by which he sells in cash.
3- The cash withdrawal by the credit card holder is considered a form of loan from the issuer of the card; this is permissible provided that this does not result in any increase, or else it is considred as Riba. In addition to this, a fixed charge –for the service –that is not related to the amount of the loan or its duration is not considered Riba. However, any additional money other than what is required for the actual service is forbidden, because it is a form of Riba that is Islamically prohibited as stated by the Islamic Fiqh Committee in its decision No. 13 (2/10) and 13 (3/1).
4- It is not permissible to buy gold, silver and cash currency by an uncovered card. [End quote].
Therefore, the situation that you asked about in the question is not permitted because it constitutes an act of endorsing Riba and being involved in it in case there is no balance.
Allaah Knows best.
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