QuestionSmartInvestor - 27.08.2017 - 15:18:54
Can someone explain the main differences between an Islamic Bank's "Covered Card" and a traditional Credit Card.
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AnswerShashi - 28.08.2017 - 17:26:57
There is no difference from Customer perspective.
SmartInvestor - 28.08.2017 - 17:36:39
What about from a product construct? Charging interest is forbidden in Islam, so how do these Islamic Credit Cards work?
Sunshine - 28.08.2017 - 17:48:56
Interesting question. I'd also like to know the difference between the two.
Kayalisoubhi - 05.09.2017 - 15:46:06
When a consumer takes out a conventional credit card, they pay interest on the amount spent along with any service fees. But this concept is unworkable for Muslims as avoiding interest, or riba, is one of the main principles of Islamic Banking.
Therefore an Islamic card allows Muslims to spend on items with a card that conforms to Sharia principles by avoiding any forbidden, or haram, financial practices.
A covered card is an Islamic alternative to credit cards in conventional banks. It works on the Islamic principle of Tawarruq – where the available balance on the card is cash acquired by selling a commodity (e.g. steel, iron, copper, etc.) on behalf of the customer. The customer then pays the cash for the commodity – which can be spread out in installments.
From a Shari'a perspective, Covered cards and other financing products should be used only when there is a dire need and cash is not available – not as an 'easy-loan' facility that promotes the wrong spending habits.