Step by Step Guide to create an Islamic Finance Contract including Transaction steps and diagrams, issues and risks along with the certificates for Shariah and Legal Reviews. Follow the update on #TRGuidanceNotes The Guidance notes are available for download on http://www.zawya.com/shariah-legal/listing/legaldocuments/

1. SHARI’A COMPLIANT
CREDIT CARDS: FEE OR
TAWARRUQ BASED
AUTHORS:
Huma Sodher
Legal Review by Shariah Review by Produced by

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Contents
About this Product Guidance Note and Documentation ....................................................................................................................................3
About Thomson Reuters...................................................................................................................................................................................................4
About Zawya Islamic..........................................................................................................................................................................................................5
About Freshfields Bruckhaus Deringer........................................................................................................................................................................6
About Shariyah Review Bureau......................................................................................................................................................................................7
Freshfields Bruckhaus Deringer certificate................................................................................................................................................................8
Shariyah Review Bureau certificate..............................................................................................................................................................................9
Introduction....................................................................................................................................................................................................................... 10
Transaction Steps and Diagrams................................................................................................................................................................................ 11
Key Differences between the Shari’a Compliant and Conventional Credit Card Products................................................................... 13
Key Islamic provisions in the Principal Documents............................................................................................................................................. 14
Shari’a Issues and Risks.................................................................................................................................................................................................. 14
Regional Practices in the GCC and South East Asia Regions............................................................................................................................ 15
Legal and Commercial Considerations..................................................................................................................................................................... 15
Appendices......................................................................................................................................................................................................................... 17
Master agreement for Sharia Compliant Credit Cards: Fee or Tawarruq Based......................................................................................... 21

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About this Product Guidance Note and Documentation
Credit cards have become an almost inevitable need in today’s society. This guidance note and
accompanying example document explains in detail with diagrams the transaction steps and operating
mechanisms for Shari’a compliant credit cards structured on the basis of Ujrah and Tawarruq contracts.
This guidance note also explains the main differences between a Shari’a compliant and conventional
credit card. Legal and commercial considerations are also highlighted, as are Shari’a risks and issues,
including differences in practice of the use of credit cards between the GCC and Southeast Asia.
PRODUCT GUIDANCE NOTES AND DOCUMENTS AVAILABLE
Sharia compliant asset & housing finance: Ijara and forward Ijarah based contract
Sharia compliant asset finance: Murabaha based
Sharia compliant deposit products: Saving and current accounts
Sharia compliant trade finance: L/C facilities
Sharia compliant credit cards: Fee or tawarruq based
Sharia compliant guarantee contract
Sharia complaint overdraft facility
Treasury Placement: Wakala based
FX-spot and forward contract: Wa’d based
Working capital finance: Mudaraba Based
Investment Sukuk – Sukuk al Wakala, Sukuk al Musharaka and Sukuk al Mudaraba structures
Islamic syndicated financing: Mudaraba based
Islamic Project finance: Istisna plus forward Ijara based
Islamic Project finance: Musharaka and diminishing Musharaka based

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About Thomson Reuters
Thomson Reuters is an integrated knowledge services provider that assists the Islamic Finance industry
through providing solutions that enhance transparency, clarity and accessibility of Islamic Finance to
the global audience of businesses and professionals. We are proud to have been at the heart of Islamic
banking since the first commercial Islamic bank was launched in 1975.
OurknowledgesolutionshelpyougainclarityandtransparencyintherapidlyemergingIslamicfinanceindustrybyprovidingyouwithdata
services, research products and consulting services.
DATA SERVICES
Thomson Reuters Eikon and Zawya products provide access to a full spectrum of all relevant Islamic asset classes and content sets to give
us¬ers the best of class research capabilities.
RESEARCH
Built on the back of the world’s most extensive data capabilities, Thomson Reuters leverages its global network to provide primary source
in¬telligence on markets, industries and institutions relevant to Islamic finance.
CONSULTING
Thomson Reuters can provide bespoke service harnessing our global knowledge network com¬bined with our deep expertise
in Islamic finance.
ISLAMIC FINANCE GATEWAY COMMUNITY
Islamic Finance Gateway (IFG) Community is the one dedicated knowledge Gateway for profes¬sionals from across different countries to
convergeandinteractonindustryissuesthatmatterinordertogenerateactionableoutcomestoshapeandspeeduptheindustry’sgrowth.

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About Zawya Islamic
Our comprehensive platform provides the transparency and clarity of information you need to
conduct business more effectively. We also provide you with tools you can use to better shape
investment decisions.
Our intelligence includes all Islamic finance and Shariah-compliant asset classes, databases, research, news and market data, and is
supported by other data that serves as a benchmark against conventional fundamentals.
Zawya Islamic addresses the needs of any investment manager or consultant – Islamic or otherwise – by giving you access to the full
spectrum of legal, Shariah and market information.
We are powered by data from Thomson Reuters and also partner with other global Shariah and Islamic finance market players, standard
setters and authorities. We have developed for your use a well-connected and networked platform that makes Shariah-compliant
investment and decision making easier. Zawya Islamic is all of the following on one single platform:
• Fatawa,standards,regulations,legaldocumentationandproductguidancenotes,intelligentlyconnectedwithscholarsandinstruments;
• Deep fundamental data on global sukuk, Islamic funds, Islamic banks and financial institutions, and Shariah -compliant equities;
• Islamic finance news, research, indices, money market and benchmark rates; and
• The ICD Thomson Reuters Islamic Finance Development Indicator and the Islamic Finance Gateway Community.
www.zawya.com/Islamic-finance

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About Freshfields Bruckhaus Deringer
Freshfields was founded in 1743 in the City of London, making it the oldest existing law firm in the world.
Today, we are host to over 2,500 lawyers located across 28 offices in 16 countries throughout the Middle
East, Europe, the Americas and Asia.
While we have offices in all the main financial and regulatory centres globally, over 30 per cent of our
work is in countries where we do not have an office. Therefore our lawyers are deeply experienced in
workingoutsidetheirhomemarkets.Moreover,theproportionofourworkoutsideour“homemarkets”is
growing, and is likely to continue to do so, as businesses invest in those places which are growing faster
than the developed world.We are focused on being able to provide our advice where our clients need it,
not just where we happen to have an office.
Our market leading practice areas
Our firm is organised into nine international practice groups in line with our clients’business needs – they include Finance (both Islamic
and conventional); Corporate; Antitrust, Competition and Trade; Dispute Resolution; Employment, Pensions and Benefits; Environment,
Planning and Regulatory; Intellectual Property and Information Technology; International Tax; and Real Estate (including Construction).
We are proud of the fact that all our practice groups and many of our lawyers are consistently recognised by the most renowned legal
research directories and market commentators to be among the market leaders in their respective areas of law.
What sets us apart from our competitors is that on every instruction on a profoundly consistent basis, we bring to bear the unique
benefits and advantages of our global coverage, comprehensive platform, true integration and client-centric mindset. We are
committed to excellence in the legal advice and support we provide to our clients for their entrepreneurial decisions – no matter the
geography, scope or mandate.

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About Shariyah Review Bureau
Shariyah Review Bureau (SRB) is the Corporate World’s leading Shari’a Advisor with scholarly presence
in more than 12 countries from US, Europe, Africa, GCC and Asia. The breadth of geographical reach
crossing national boundaries makes it a unique Shari’a consultancy body that can meet clients true
international business requirements.
Licensed by the Central Bank of Bahrain it is a natural proxy to institutes seeking Shari’a Compliant Funds and Islamic windows and
transactions. Apart from clients in UK, Canada, France, Australia, Hong Kong, Switzerland and the GCC, it is the Shari’a Advisor for 21%
of the Co-operative Insurance Firms Listed on the stock-exchange market in the Kingdom of Saudi Arabia. SRB also serves 12% of the
Saudi Investment Companies licensed and regulated by the CMA and has a diverse set of experience in Islamic banking and non-banking
institutions, including securities firms, Shari’a compliant national banks, energy firms and information providers. It also has an extensive
experience in helping clients cover a wide spectrum of transactions ranging from Sukuk’s, Private Equity Funds, Equity projects, Trade
Finance transactions, Margin Trading, Real Estate Developments, Land Funds, ICT Deals, Money Market, Textile, Sports and Pharma Funds.
With almost a decade experience of Shari’a Advisory and Shari’a Audit, srb has sustained a record in innovation and impact for transactions
in Shari’a compliant Corporate debt, Sukuks and Islamic equity markets, initial public offerings screening & Investment Banking Practice.
To learn more visit www.shariyah.com

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Freshfields Bruckhaus Deringer certificate

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Shariyah Review Bureau certificate

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1 Introduction
Credit Cards often referred to as‘Plastic Money’are an inevitable need of the modern-day society and are
considered as a prime conventional banking product of contemporary times. Conventional banks have
dominated the market for credit card products for decades and still strive to offer innovative credit card
solutions. A credit card enables the cardholder to purchase goods and services on credit and withdraw
cash advances in case of emergency. The conventional credit cards are interest-bearing revolving
credit facility per se, which is not permitted under Shari’a law. In response to the ever-growing demand
from clients and to compete with the conventional banks in this lucrative business, Islamic banks have
developed a Shari’a compliant version of plastic money.
This practice note aims to focus only on Shari’a compliant credit cards structured on the basis of ujrah and tawarruq contracts. However,
Islamic banks have also used the contracts of bai al inah, ijarah, tawarruq, ujrah, qard and kafalah to structure the Shari’a compliant cards.
Shari’a compliant credit cards in Malaysia are predominantly based on bai al inah contract, whereas GCC based Islamic banks generally
structure the credit cards on the basis of tawarruq.
Shari’a compliant credit cards may be denominated in local currency and/or foreign currency. Shari’a compliant credit cards have similar
but not the same functionalities of conventional credit cards. The conventional credit cards are based on an interest bearing revolving
credit facility, which requires the client to repay the outstanding balance and any interest charged thereon after the lapse of interest free
period. On the contrary, Islamic banks are prohibited to charge interest; hence the Shari’a compliant credit card cannot be structured as an
interest bearing revolving credit facility. Shari’a compliant credit cards may be structured on the basis of Shari’a compliant interest-free loan
contracts (qard); however, such structuring does not in any case make the contractual payment of interest permissible (halal).
Shari’a compliant credit cards based on tawarruq involve the sale of a specified asset by a bank to a client on a deferred Murabaha basis,
and the onwards sale of that asset on a spot basis by the client either directly or through a commodity broker arranged by the bank.
A tawarruq is a tripartite or quadripartite sale involving a bank, the client and commodity broker(s). The credit cards based on tawarruq
have received criticism, since the permissibility of tawarruq per se has been questioned on reputed Shari’a forums.
The Shari’a compliant ujrah based credit cards entitle the cardholders to specified services, benefits and privileges in consideration
for a fixed flat fee. Hence, the ujrah based cards do not impose any floating percentage fee dependent on the outstanding balance.
The ujrah based cards generally receive criticism on the ground that the flat fee charged thereon is not a true representation of credit
card administration costs as it includes the recovery of cost of funds, which is akin to the charging of interest.