WHAT IS A SHARIA COMPLIANT MURABAHA CREDIT CARD?
A Murabaha credit card is by definition a Shariah-compliant card facility structured specifically under the Murabaha (cost-plus sale) contract.
Instead of lending money and charging interest, the issuer purchases an asset or commodity and resells it to the cardholder at a disclosed markup. The cardholder repays the total agreed amount (cost + profit) over time, without interest compounding.
Murabaha credit card: contractual structure, profit model and Shariah compliance mechanism
Understanding a Murabaha credit card
Core objective of a Murabaha credit card
The primary objective of a Murabaha credit card is to provide revolving purchasing power while strictly avoiding riba (interest). It enables consumers to access liquidity for daily transactions while maintaining compliance with Islamic commercial law principles.
How a Murabaha credit card functions operationally
When the cardholder makes a purchase, the issuing bank settles the merchant invoice. The outstanding balance is then structured through a Murabaha transaction where the bank sells a Shariah-approved asset to the customer at a predetermined profit margin. The total payable amount is fixed and disclosed in advance.
Step-by-step financing flow under Murabaha
The issuer first acquires a tradable commodity. It then sells the commodity to the customer at cost plus profit. The customer owes this fixed amount and repays according to the agreed schedule. No variable interest is calculated daily on the outstanding balance.
What qualifies as a true Murabaha credit card
A genuine Murabaha credit card must clearly disclose the cost price of the commodity, the markup applied, and the repayment schedule. The profit must be pre-agreed and not fluctuate based on time overdue.
What is NOT considered a Murabaha credit card
Any card that applies conventional APR, compounds daily interest, or recalculates charges based on outstanding balance duration is not Murabaha-compliant, even if labeled Islamic.
Types of expenses covered by a Murabaha credit card
Permissible expenses typically include groceries, retail purchases, utility bills, tuition payments, medical services, airline tickets, business-related purchases, halal travel expenses, and home goods.
Expenses that cannot be covered
Murabaha credit cards generally restrict payments to gambling operators, alcohol vendors, adult entertainment services, interest-bearing financial services, speculative trading platforms, and other prohibited merchant categories.
Profit margin range applied
Profit margins commonly range between 6% and 18% annually depending on jurisdiction, risk profile, and card tier. The markup is disclosed at contract formation and does not compound.
Late payment handling
Late penalties, if applied, are usually fixed charges intended as deterrents and may be allocated to charity. They are not structured as income-generating interest.
Cash withdrawal under Murabaha
Cash withdrawals may require a separate Murabaha transaction and often carry higher profit margins between 10% and 18% due to liquidity risk.
Other applicable fees
Cardholders may pay annual membership fees, foreign transaction fees (1%–3%), card replacement fees, and optional protection plan fees.
Eligibility criteria
Applicants must provide proof of income, identity documentation, pass credit assessment, and meet minimum salary requirements set by the issuing bank.
Transparency and Shariah oversight
Murabaha card issuers typically operate under supervision of a Shariah advisory board to ensure compliance with Islamic finance standards.
Risk disclosure
Users must understand the fixed profit obligation before entering into the Murabaha agreement. The total payable amount should be clearly stated in the contract.