ISLAMIC CREDIT CARD: STRUCTURES & ISSUES WITH SPECIAL FOCUS ON KHIDMAH CARD OF IBBL

ISLAMIC CREDIT CARD: STRUCTURES & ISSUES – SPECIAL
FOCUS ON KHIDMAH CARD OF IBBL
Prepared For: Dr. Hasina Sheykh
Associate Professor
Department of Banking & Insurance
University of Dahka.
Prepared By: Md. Abdul Jalil
Class ID: 19-034
Batch: 19th
Program: Bachelor of Business Administration
30th March, 2017
University of Dhaka

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LETTER OF TRANSMITTAL
30th March, 2017
Dr. Hasina Sheykh
Associate Professor
University of Dhaka
Subject: Submission of the Internship Report.
Madam,
It gives me immense pleasure to submit my report on “Islamic Credit Card:
Structures & Issues – Special Focus on Khidmah Card of IBBL” which was assigned
to me as a partial fulfillment of the program “Bachelor of Business Administration”.
While making this report I come across many hurdles and pleasant experience. But
valuable experiences I have gained during the period will undoubtedly benefit me in
the years ahead. This report attempts to describe my observations, learning’s and
experienced gained in “Islami Bank Bangladesh Limited (IBBL)”. Despite the
several constraints, I gave my all efforts to make this report a meaningful one.
I have tried sincerely to comprehend and translate my knowledge in writing this
report. My effort will be rewarded only if it adds value to the research literature. I
enjoyed this project work and gladly attend any of your calls to clarify on my point, if
necessary.
Yours Sincerely,
Md. Abdul Jalil
ID: 19-034
University of Dhaka.

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CERTIFICATE OF INTERNSHIP COMPLETION

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SUPERVISOR’S CERTIFICATE
This is to certify that the Internship Report on “Islamic Credit Card: Structures &
Issues – Special Focus on Khidmah Card of IBBL” in the bona fide record at the
report is done by Md. Abdul Jalil, ID: 19-034, as a partial fulfillment of the
requirement of Bachelor of Business Administration (BBA) degree from the
Department of Banking and Insurance, University of Dhaka.
The Report has been prepared under my guidance and is a record of the bona fide
work carried out successfully.
……………………………………
Dr. Hasina Sheykh
Associate Professor
Department of Banking and Insurance
University of Dhaka

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DECLARATION
I do here by solemnly declare that the work presented in this Internship report has
been carried out by me and has not been previously submitted to any other
University/College/Organization for an academic qualification/certificate/diploma
or degree.
The work I have presented does not breach any existing copyright and no portion of
this report is copied from any work done earlier for a degree or otherwise.
I further undertake to indemnify the Department against any loss or damage arising
from breach of the foregoing obligations.
.....................................................
Md. Abdul Jalil
ID: 19-034, Section: A
Batch: 19th
University of Dhaka

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ACKNOWLEDGEMENT
At the very beginning I would like to express my deepest gratitude to the almighty
ALLAH for giving me the strength and the composure to finish the task within the
scheduled time.
I would like to pay my gratitude to my supervisor Dr. Hasina Sheykh, Associate
Professor, Department of Banking & Insurance, University of Dhaka, who has
assigned me this task and instructed in the right way and given me proper guidelines
for preparing this report.
I am indebted to Dr. Saleh Matin, Senior Principle Officer of IBBL, who was the
coordinator of our internship program in Islami Bank Training and Research
Academy, to Dr. Shawkat, Mahmud, Md. Sulaiman and others who helped me during
my intern in the local office of Islami Bank Bangladesh Limited. I should also give
thanks to Hamida Mubasshera from whom I have learned much about Islamic
finance, Dr. Shamsuddhuha, Zahiduzzaman, Sharear Kawsar Towhid who helped me
on many occasions during my research by providing study materials or other ways.
I am grateful to my beloved Parents, friends and well-wishers for their inspiration
that lead me to go ahead.
Finally, I thank all the persons who have directly or indirectly contributed in
preparing this report.
This Report is not free from limitation. There might still be some minor mistakes
including typing errors despite utmost care, we apologize for these.
Md. Abdul Jalil
------------------

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EXECUTIVE SUMMARY
Credit card is a plastic currency that is becoming popular day by day as a payment
mechanism and availing immediate credit. Because of customer’s demand and
expanding Islamic financial industry Islamic credit cards came into the picture
beginning of this century. Earning though providing credit is not permissible in
Islamic Shari’ah. Many Islamic banks throughout the world issues Islamic credit
cards based on different structures to justify the earnings. The bad impacts of credit
cards promoting debt and consumerism are also the issues in credit cards.
This research is conducted on Khimah Credit Card issued by Islami Bank Bangladesh
Limited (IBBL). The aims of the study are (i) to explore the structures or models used
in Khidmah card and whether it is shari’ah compliant or not (ii) to explore whether
the credit card selection factors of Khidmah Cardholders are different than that of
conventional credit card holders (iii) to determine whether Khidmah credit cards are
associated with debt like conventional credit cards.
The Khidmah Card instruction circulars by IBBL, OIC Fiqh Academy Resolutions on
credit card, interviews with shari’ah expert, bankers and available literature
provides enough document to achieve first objective. A survey is conducted among
56 credit card holders to find out the queries in objectives two and three.
Khidmah card is based on Ujrah model. The underlying theme is to charge service
fees for providing payment mechanism and other loan related services. OIC Islamic
Fiqh Academy allowed charging fees for loan related services. The underlying
contract in Khidmah between IBBL and cardholders is Kafalah or guarantee and
scholars differed whether guarantor can charge fees or not for providing services.
IBBL doesn’t charge any commission directly for providing guarantees.
Most people possess credit cards because of personal choices, not influenced by
others. The selection factors by Khidmah cardholders and other credit cardholders
are found different. The negative impacts of credit card is less in case of Khidmah
cardholders than other credit cardholders.

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CONTENTS IN DETAILS
Particulars Pages
Letter of Transmittal II
Certificate of Internship Completion III
Supervisor’s Certificate IV
Declaration V
Acknowledgement VI
Executive Summary VII
Table of Contents VIII
List of Charts, Tables & Diagram XII
Chapter 1: Introduction of the Study 1-6
1.1 Research Background 2
1.2 Research Aims, Objectives & Research Questions 3
1.3 Significance of the Study 5
1.4 Research Methodology 6
1.5 The Structure of the Research 6
Chapter 2: Islamic Credit Card: A Preliminary Survey 8-18
2.1 Introduction 9
2.2 Brief History 9
2.3 Credit Card Definition 9
2.4 Types of Credit Card 10
2.5 Surveying Empirical Literature on Credit Cards 11
2.5.1 Shari’ah Aspects of Credit Card 11
2.5.2 Impacts of Credit Card 12
2.5.3 Selection Factors of Credit Card 13
2.6 Shari’ah Stand on Conventional Credit Card 15
2.7 The Position of Debt in Islam 17
2.8 Conclusion 18

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Chapter 3: Organizational Profile 19-30
3.1 Introduction 20
3.2 What is IBBL? 20
3.3 What IBBL do? 21
3.3.1 Deposit 21
3.2.1.1 Deposit Principles 21
3.2.1.2 Deposit Schemes 21
3.3.2 Investment 22
3.2.2.1 Investment Principles 22
3.2.2.2 Investment Schemes 23
3.3.3 Foreign Exchange Business 23
3.3.4 Other Services 24
3.4 Historical Background 24
3.5 Awards & Recognitions 24
3.6 Corporate Information 25
3.7 Organogram 26
3.8 Financial Highlights (last 5 years) 27
3.9 Islamic Banking Industry 28
3.10 Conclusion 30
Chapter 4: Research Methodology 31-36
4.1 Introduction 32
4.2 Research Methodology 32
4.3 Research Design 32
4.4 Research Strategy 33
4.5 Research Method 33
4.5.1 Qualitative Data Collection Method – Semi Structured
Interviews
33
4.5.2 Quantitative Data Collection Method – Survey Questionnaire 35
4.6 Limitations & Difficulties 35

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4.7 Conclusion 36
Chapter 5: Characteristics & Working Mechanism of Khidmah Card 37-42
5.1 Introduction 38
5.2 Khidmah Card Facilities 38
5.3 Working Mechanism of Khidmah Card 39
5.4 Charging Structure in Khidmah Card 41
5.5 Conclusion 42
Chapter 6: Khidmah Credit Card Model 43-56
6.1 Introduction 44
6.2 Popular Models 44
6.2.1 Bai al-I’nah Model 44
6.2.2 Tawarruq Model 46
6.2.3 Ujrah Model 48
6.3 Innovative Models 49
6.3.1 Ijarah Model 49
6.3.2Murabaha Model 50
6.3.3 Al-Muqassa Model 52
6.4 Khidmah Card Model 54
6.5 Conclusion 56
Chapter 7: Shari’ah Aspects of Khidmah Card 57-75
7.1 Introduction 58
7.2 Underlying Contract in Khidmah Card 58
7.3 Shari’ah Screening of Khidmah Card Model 60
7.4 Khidmah Card Earnings from Shari’ah Perspective 62
7.5 Conclusion 63
Chapter 8: Data Analysis of the Respondents – Survey
Questionnaire
65-75
8.1 Introduction 65

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8.2 Profiles of the Respondents 65
8.2.1 Demographic Background 65
8.2.2 Credit Card Profile 66
8.3 The Determinants of Credit Card Selection 70
8.3.1 Factors Determining Credit Card Possession 70
8.3.2 Credit Card Selection Factors Based on Features 72
8.4 Analysis of the Financial Impacts of Credit Cards 74
8.4.1 Impacts of Credit Cards 74
8.4.2 Comparison of the impacts 75
8.5 Conclusion 75
Chapter 9: Conclusion of the Study 78-80
9.1 Findings of the Study 78
9.1.1 Structure of Khidmah Card 78
9.1.2 Shari’ah Compliant Status of Khidmah Card 78
9.1.3 Khidmah Card Selection Factors 78
9.1.4 Financial Impacts of Khidmah Card 79
9.2 Recommendations 79
9.3 Future Research 80
9.4 Epilogue 80
Bibliography 83
Appendices
Appendix A: Fees and Charges of Khidmah Card 85
Appendix B: Credit Card Survey Questionnaire 88
Appendix C: OIC Islamic Fiqh Academy Resolution on Credit Cards 91
Appendix D: Semi-Structured Questionnaire for Shari’ah Expert 94
Appendix E: Semi-Structured Questionnaire for Banker 95
Appendix F: Deposit & Investment Schemes of IBBL 96
Appendix G: Selection Factors based on Embedded Features 98
Appendix H: Financial Impacts of Credit Cards 101
Appendix I: Plagiarism Report 103

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End of the Report 104
LIST OF CHARTS
No. Particulars Pages
3.1 Organogram of IBBL 26
3.2 Deposit, Investment & Foreign Exchange of IBBL 27
3.3 ROA & ROE of IBBL 27
3.4 Net Profit of IBBL 27
3.5 Proportion of Islamic Banks 29
3.6 Market Share of Deposits 29
3.7 Market Share of Credit/Deposit 29
3.8 Market Share of Remittances 29
8.1 Age Distribution of the Respondents 65
8.2 Religion of the Respondents 65
8.3 Issuers of Respondent’s Credit Card 66
8.4 Types of Credit Cards 68
8.5 Typical Monthly Payment by Others 68
8.6 Typical Monthly Payment by Khidmah User 68
8.7 Should there be Islamic Credit Card 70
8.8 Knowledge about Islamic Credit Card Model 70
8.9 Determinants of Others Credit Card Possession 71
8.10 Determinants of Khidmah Credit Card Possession 71
8.11 Selection Factors based on Features 73
8.12 Impacts of Credit Cards 75

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LIST OF TABLES
3.1 Some Key Facts of IBBL
5.1 Comparison of Debit, Credit & Charge Card 38
6.1 Types of Khidmah Card 56
8.1 Age Distribution of Respondents 65
8.2 Credit Card Issuers 67
8.3 Types of Credit Cards 69
8.4 Typical Monthly Payment 72
8.5 Selection Factors by Non-Khidmah Cardholders 72
8.6 Impacts of Non-Khidmah Cards 74
8.7 Impacts of Khidmah Cards 74
LIST OF DIAGRAMS
6.1 Al-I’nah Model 40
6.2 Tawarruq Model 45
6.3 Ujrah Model 48
6.4 Ijarah Model 49
6.5 Murabaha Model 51
6.6 Flow of Transaxtion 52
6.7 Al-Muqassa Model 53
6.8 Khidmah Card Model 55
7.1 Kafalah Contract in Khidmah Card 59
7.2 Shari’ah Screening of khidmah Card 61

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n the name of God, Most Gracious, Most Merciful
Praise be to Allah the Lord of the Universe, and blessing and peace be upon
our Master Mohammed the last of the Prophets, and upon all his kin and
companions.
I

ntroduction Of The Study
Chapter 1
I

[Islamic Credit Card: Structures & Issues-Special Focus on Khidmah of IBBL]
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1.1 Research Background
In 1983, Islami Bank Bangladesh Limited as a first Islamic bank not only in
Bangladesh but also in this region was established. Up to this date there are 8 full-
pledged Islamic banks operating in this country along with its conventional
counterparts. There are many other conventional Banks who are providing Islamic
financial services either through establishing Islamic banking branches or windows.
The country’s financial sector is however dominated by conventional banks and
Islamic banks here are competing with conventional banks in terms of offering
services.
To provide services to the customers according to their needs, Islamic banks are
offering almost all the services offered by conventional banks through shari’ah
compliant ways. Islamic credit card is a new product relative to conventional credit
cards. It is not until 2001 when banks from Malaysia and Bahrain introduced the
concept of Islamic credit cards to cater the needs of Muslim Populations who
demanded shari’ah compliant credit cards.
Credit card is a plastic card that can be used instead of hard currency or cash that
make life easier and provides an easy payment mechanism. But its major role as the
name suggests is providing credit that can be paid in latter. A grace period is normally
given within which the amount can be paid without any addition. After the grace
period, interest is calculated on the outstanding amount. Credit as a mute asset in
Islam can’t generate income. Therefore, Islamic banks can’t duplicate the
conventional credit card mechanisms to earn profit.
Muslims are prohibited to sign a contract having interest clause in credit cards. Due
to the demand of shari’ah compliant credit cards, different models and practices were
developed. The practices and different model used by Islamic banks throughout the
world for structuring Islamic credit cards are highly criticized by the Shari’ah expert.
Besides its structure, several studies found that Islamic credit cards are not also free
from promoting consumerism and debt accumulation like conventional credit cards.
IBBL as the largest Islamic Banks in Bangladesh also issued an Islamic credit card
namely Khidmah card.

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Given the backdrop, this research is mainly undertaken due to three main motives,
(i) to explore the structures or models used in Khidmah card and whether it is
shari’ah compliant or not (ii) to explore whether the credit card selection factors of
Khidmah Cardholders are different than that of conventional credit card holders (iii)
to determine whether Khidmah credit cards are associated with debt like
conventional credit cards.
1.2 Research Aims, Objectives & Research Questions
The research aims to explore the various Islamic credit card models or structures,
issues raised by shari’ah experts in these structures and whether these issues exists
in Khidmah card or not. The research also aims to examine the effect of credit card as
a debt instrument on Khidmah card holders and whether the effect of Khidmah card
as an Islamic financial instruments is different than conventional credit card or not.
The research also aims to examine the factors that influence Khidmah card holders
to choose the Khidmah card and whether the selection factors are different from that
of conventional credit card holders. In particular, the research aims to two things, (i)
to explore the Khidmah card underlying structures (ii) to find out whether the
Khidmah card holders behave in more religious ways than conventional card holders
hence less negative effect of using credit card.
In attaining the following aims, the following objectives are developed.
(i) The first objective is to explore the shari’ah aspects of Khidmah card and whether
Khidmah card is free from the issues raised by the shari’ah experts on different
Islamic credit card models used by Islamic financial institutions. To attain this
objective, several sub objectives are also developed stated below.
(a) Different structures are used by Islamic credit card issuers and some of them
highly criticized because of their structural model that resemble the conventional
credit cards. Therefore, it is one of the objectives of this research is to identify the
structures used in Khidmah card.
(b) Experts have differed about the underlying contracts in credit cards. Some say it
is Wakalah, other say it is kafalah. There are others who say it is Hawalah. The experts

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also provide different opinions on whether the credit card is based on single contract
or a combination of many contracts. Therefore, it is one of the objectives of this
research is to find out the underlying contract in the Khidmah card that exists
between Khidmah cardholders and IBBL as a card issuer and whether the underlying
contract permits the issuer to charge a fee for the contract.
(c) It is also one of the objectives to examine whether the Khidmah card is shari’ah
compliant product or not.
(d) IBBL earns from Khidmah card through charging different fees and charges.
Another objectives of this research is to examine whether the Khidmah card earnings
are shari’ah compliant or not.
(e) Khidmah card as a credit card is a debt instrument. It is necessary to see the
position of debt in Islam. This is also an objectives of this study to examine the
position of debt and debtholder in general that is relevant to any debt instrument in
Islamic finance.
To attain these objectives, several research questions are developed as sated below.
Q 1. What is the model used in structuring Khidmah Card?
Q 2. What is the underlying contract between Khidmah Cardholders and IBBL?
Q 3. Can IBBL charges fees for underlying contracts?
Q 4. Is Khidmah Card a Shari’ah compliant product?
Q 5. Are Khidmah Card earnings Shari’ah compliant?
Q 6. What is the position of debt in Islamic legal rulings?
(ii) It is expected that religious factor influences the Khidmah card holders to choose
Khidmah Card. The second objective of the research is to examine whether the
selection factors of Khidmah card holders are different than that of conventional
credit card holders. To achieve the objectives, several research questions are
developed as stated below.
Q 1. What is the initial factor that leads the customer to choose a credit card?

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Q 2. What features of credit card are valued by customers?
Q 3. How can Khidmah cardholders different from others in the above matters?
(iii) The third objective of this research is to examine the impact of Khidmah card as
a debt instrument on Khidmah card holders and to see whether the impact is same
for Khidmah cardholders like that of conventional credit card holders. To achieve the
objectives, the research questions formulated are stated below.
Q 1. Are Khidmah Cardholders transactors1 or revolvers2?
Q 2. Is Khidmah Cardholders debt increasing because of credit card?
Q 3. Are Khidmah cards free from less negative impacts on Cardholders?
1.3 Significance of the study
The significance of the research comes from the fact that there is no research
undertaken on Khidmah Card from any aspect. In fact, there is no research
undertaken on any Islamic credit card issued by various Islamic credit cards in
Bangladesh. The researcher has not gone through any researches conducted even on
conventional credit cards issued by any Bangladeshi banks or financial institutions.
There are lots of research done on conventional credit cards by various researchers
from various aspects. There exists also few researches on Islamic credit cards. Most
of the researches have been done either on the context of Malaysia or on the context
of Middle East. Bangladesh as a fourth largest Muslim country in terms of population,
where 86.6% profess the religion of Islam3, didn’t carry much attention of the
researchers in this regard where a vast market of Islamic finance exists.
This research fills this gap and touches every aspects of Islamic credit cards and
specially focuses on Khidmah credit card of Islami Bank Bangladesh Limited who is
1 Transactors here means those who pay the outstanding amount in grace period and don’t revolve
the outstanding balance. It is deemed that they use credit cards not for credit facility.
2 Revolvers revolve their outstanding balance of credit cards for next month and pay the amount with
interest in installments basis. They utilize the credit features of credit cards.
3 The information is taken from Bangladesh Government Website, http://www.bangladesh.gov.bd
[Accessed on 26th March, 2017]

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the market leader of Islamic financial industry in Bangladesh. This research also
shows the attitude of credit card holders in Bangladesh and the impact of credit cards
on cardholders in the context of Bangladesh that have not been done in any prior
study.
This study offers a wider and comprehensive literature on Islamic credit card in the
context of Bangladesh. The study uses structured questionnaire for bankers,
economists and shari’ah experts to complement the qualitative research on shari’ah
aspects of Khidmah card and the findings from survey questionnaire on credit cards.
The study also analyzes the OIC Islamic Fiqh Academy Resolution on Credit Cards
and relate the resolution to Khidmah Card.
1.4 Research Methodology
The methodology used in this research is pragmatic where both the qualitative and
quantitative methods are used to achieve the aims of the research. To achieve the
first objectives, qualitative research methods are used to deeply understand the
issues and structures of Islamic credit cards. The OIC Islamic Fiqh Academy
Resolutions, documents on Khidmah card from IBBL, minutes of shari’ah supervisory
committee of IBBL on Khidmah card and many available literatures on credit cards
are used. The structured questionnaire for banker, economist, shari’ah expert is also
used to complement the qualitative and quantitative research. The quantitative
methods are used for survey questionnaire on credit cards that surveys the Khidmah
card holders as well as credit card holders in general. The methodology and methods
are explained in detail in the ‘Chapter 4: Research Methodology’
1.5 The Structure of the Research
The introductory chapter introduces the research, its objectives, goals, aims, and
research questions to be answered through the research report. The rationale of the
study and what this study add to the existing literature is discussed also. The report
is divided into 9 chapters. Following the introduction, the report is structured in the
following chapters.
Chapter 2 discussed the definition, history of credit cards provided by different
institutions and experts. The available literature on credit cards as well as Islamic

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credit cards is also reviewed in this chapter. The shari’ah stand on conventional
credit cards and the position of debt in islam are discussed in detail as related to
Islamic credit cards. The opinions of jurists are also discussed.
Chapter 3 discusses the research methodology in detail. The two research
methodology quantitative and qualitative are used in this research. The methods,
design and the process of data collection and interpretation are discussed here.
Chapter 4 introduces Islamic Bank Bangladesh Limited, its mission, vision, objectives,
operational models, mechanism as well as its recent performance. A brief over view
of Islamic financial industry is discussed also. Islamic financial industry is run side by
side conventional financial industry in Bangladesh.
Chapter 5 discusses the characteristics and working mechanism of Khidmah Card.
The facilities provided by Khidmah card are compared with debit card and charge
card.
Chapter 6 depicts the Islamic credit card models developed and suggested so far. The
Khidmah card model is discussed after and found that it is based on Ujrah model.
Chapter 7 discusses the sahri’ah aspects of Khidmah card in details, its model,
charging structure, shari’ah compliant status, and underlying contracts in Khidmah
cards. The opinions of the scholars and OIC Fiqh Academy, AAOIFI are discussed
along with it.
Chapter 8 is divided into three sections. First section discusses the demographic
characteristics of survey respondents and their credit profile. Some of their general
opinions are also discussed with graphical presentations. Second section discusses
the selection factors of credit cards. The selection factors of Khidmah card and that
of other credit cards are compared. The last section discusses the credit cards
impacts on Khidmah cardholders and other card holders and compare the findings
of the two. The chapter search whether Khidmah cardholders are less vulnerable to
negative consequence of credit cards.
Chapter 9 conclude the research with portraying the recommendations, findings and
paving ways for further research on Islamic credit cards in Bangladesh.

slamic Credit Card
A Preliminary Survey
Chapter 2I

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2.1 Introduction
This chapter aims to introduce credit cards, what it is and the history of its
developments and the available literatures on credit card. The shari’ah stand on
conventional credit cards and the position of debt in Islamic legal rulings are also
discussed as a relevant topics to credit cards. Following the introduction, section 2.2
provides a brief history of credit card, section 2.3 defines the credit card, section 2.4
presents the types of credit cards, section 2.5 surveys the literature available on
credits cards that discusses the shari’ah aspects of credit cards, credit card impacts
on the users and credit card selection factors, Section 2.6 details the shari’ah stand
on conventional credit cards, section 2.7 details the position of debt in Islamic legal
rulings and section 2.8 provides key issued discussed in this chapter in concluding.
2.2 Brief History
The concept of modern credit card goes back to around 1920s. But it is in 1951 when
credit card was issued by a bank namely Franklin National Bank. Credit card industry
got momentum with the emergence of BankAmericard and Master Charge in 1958
and 1966 respectively, today known as Visa and MasterCard (Hussin, 2011).
Islamic credit card is a new product in credit card industry. It is in 2001 when first
Islamic credit card was issued namely al-Taslif card by Am Bank of Malaysia. In 2002,
al-Buraq was issued by ABC Islamic Bank in Bahrain along with others issued in
Malaysia (Bilal & Meera, 2015). The Islamic credit cards issued in Malaysia initially
adopted al-I’nah model. Bank Rakyat introduced Islamic credit card based on
Tawarruq model in 2008 and Ujrah model was introduced by EON CAP Islamic Bank
Berhad4 and HSBC Amanah in 2009 (Noor & Azli, 2009).
2.3 Credit Card Definition
The easy or practical definition of credit card is buying first and paying later. OIC Fiqh
Academy defined credit card as, “a document given by its issuer to a mutual or juridical
4 BHD or Berhad is a Malay word meaning ‘private’ equivalent to ltd. Or limited in our country to
indicate a private limited company.

10
person on the basis of a contract between them enabling it to buy goods or services from
a vendor who approves the document, without paying the price immediately as the
document includes the issuer’s commitment to pay.”5 Kahf & Mohomed (2016)
highlighted that the definition of credit card given by OIC Fiqh Academy in 1992
should be updated as the practice of credit card has been changed. The price is now
paid immediately by the card issuers usually within 48 hours in the merchant
account and it is the cardholder who delays the payment to the card issuer.
According to Bangladesh Bank guidelines for credit card operations, “The term Credit
Card generally means a plastic card issued by Scheduled Commercial Banks (SCBs)
assigned to a Cardholder, with a credit limit, that can be used to purchase goods and
services on credit or obtain cash advances.”6
2.4 Types of Credit Card
Eid (1998) distinguished the secured credit card and unsecured credit card and
stated both of them can be subdivided into single payment credit cards and
installment credit cards. Unsecured credit card is popular and consists almost 80%
of the cards issued by different banks. The secured credit cards is based on the
concept of hawalah and unsecured one is based on the concept of kafalah or gurantee.
This is guarantee because the bank is committed to pay to the merchants even though
there is not enough money in the cardholders account. The single payment credit
cards resemble checks and the interest on credit cards is much more than loans.
Credit card is different from debit card and charge card. The cardholder must pay all
the outstanding amount in full by the fixed date in charge card. The account is debited
directly to the debit card holder who can only use the money available or deposited
in his account. There are different types of credit cards issued namely Standard
Credit Card, Credit Cards with Rewards Programs, Bad Credit and/or Credit Repair
Cards and Specialty Credit Cards (Kahf & Mohomed, 2016).
5 The definition was provided by OIC Fiqh Academy in its seventh session, resolution no. 63/1/7
6 “Guidelines of credit card operations of banks” issued by Bangladesh Bank.

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2.5 Surveying Empirical Literature on Credit Cards
In this section, we will review some of the available literature on credit card
especially relative to Islamic credit card. We are going to discuss the definition
provided by the authors and researchers, the usage, history of credit card, and the
type of underlying contracts among the parties of credit card, the existing models
used by different Islamic financial institutions, the matters of consumerism and
indebtedness and some of the new models suggested by different researchers.
2.5.1 Shari’ah Aspects of Credit Card
Credit card is a debt instrument through which the card holders get immediate credit.
Though the debts are not encouraged in Islam, however permissible with three
conditions namely (i) the borrower should be determined to repay the debt (ii) the
borrower must have the capacity to repay (iii) the debt should be for something
permissible in Islamic shari’ah (Kahf & Mohomed, 2016). Noor and Azli (2009)
confirmed that Islamic credit card was recognized as a shari’ah compliant product by
the shari’ah advisory council of Bank Negara Malaysia. OIC Fiqh Academy also in its
resolution on Credit Cards states that credit cards can be issued without the
condition of imposing interest on debt (Islamic Development Bank; Islamic Fiqh
Academy, 2000).
There are two dominant views on the shari’ah permissibility of conventional credit
cards among the shari’ah experts and scholars. One side says it is not permissible
because of interest clause and another side says it is permissible with two strict
conditions. The conditions are that the cardholder must pay the outstanding balance
within the grace period and avoiding any cash withdrawal as it triggers interest (Kahf
& Mohomed, 2016). Council of Islamic Fiqh Academy of OIC in its resolution on credit
card states that is not permissible to issue or use conventional credit cards. (Islamic
Development Bank; Islamic Fiqh Academy, 2000).
Credit card is a mute asset that can’t generate income. Any increment outside sale,
lease and sharing mechanism are not shari’ah compliant. As a mute asset, credit cards
debt securitization practiced by many is the violation of shari’ah requirements. (Kahf

12
& Mohomed, 2016). However, commission from the merchant in credit card is
permissible in shari’ah (Noor & Azli, 2009).
There are many models developed to meet the demands of customers who demand
shari’ah compliant credit cards. The ujrah model involves Kafalah and Qard al-hasana
contracts. Any fee charged based on these two contracts are not permissible in the
shari’ah and thus non-shari’ah compliant (Bilal & Meera, 2015). Bai al-I’nah model
and Tawarruq model are also used as shari’ah compliant credit cards. Shari’ah
advisory council of Bank Negara Malaysia approved the usage of bay al-I’nah model
in credit card structure and stated it was permissible in shari’ah.
The jurists from different schools analyzed Tawarruq and I’nah, some jurists
permitted this kind of trade and other considered it was not permissible. The
preferred view in all schools of fiqh is that tawarruq is permissible and this is the
view of AAOIFI also. OIC Islamic Fiqh Academy disallowed the organized tawarruq in
its 17th meeting. Ibn al Qayyim stated in I’lam al Muwaqqin about I’nah and
Tawarruq where he said that Tawarruq is sister (as same as) I’nah. I’nah and
Tawarruq models are subject to much criticism and organized tawarruq is
disallowed by majority of the jurists (Noor & Azli, 2009).
HSBC issued ‘credit card-I’ in Malaysia based on the concept of ujrah, hence called
ujrah model. Noor and Azli (2009), after analyzing the model, questioned the
justification for fee charges on the cardholders who partially pay the outstanding
amount where the person who fully pay the outstanding amount enjoy management
charge free. High management fees in ujrah model benchmarked with conventional
credit card charges don’t reflect actual fees.
Business model should be reviewed from time to time to make it more shari’ah
compliant and opined that managing credit card transactions is not the best way to
generate profit in Islamic framework (Noor & Azli, 2009).
2.5.2 Impacts of Credit Card
Credit card is the promoters of consumerism and indebtedness. The matters of
consumerism and indebtedness as a direct result of credit cards. It was found that

13
the credit card debt per U.S. household rises to $7,154 at the end of 2014 from $6,887
at the end of 2013 (Kahf & Mohomed, 2016).
Prelec and Semister (2001) conducted a research to determine whether credit card
affect the user’s willingness to pay. The previous studies called this phenomenon as
credit card premium, if credit card boost willingness to pay, the authors said. The
results revealed a large credit card premium though the effect was not always
present, the author said. It implies that the willingness to pay is increased when
customers are instructed to pay with credit cards rather than cash.
King (2004) tried to find out the effects of credit card holdings on money demand.
The author conducted a research on previous data set and found whether the credit
card used as a means of borrowing or convenience payment or alternate payment
system. Money demand was presented through checking account balances as a proxy.
The results suggest that there is a negative relationship between checking account
balances and credit card holdings and positive relationship exists between credit
card holdings and savings account balances. This implies that people use credit card
as an alternative payments system the results less need for keeping idle money on
checking accounts that give no interest. The data on revolving balance suggest that
people use credit cards as a means of borrowing also.
Crack and Roberts (n.d.) discussed the credit card indebtedness with the parable of
banana. The authors explained how a person could, especially youth got caught in
debt mount through the credit cards. The authors explained the phenomena by using
TVM calculations and presented two case study to represent the phenomena. The
authors commented that if the cardholders paid the minimum amount every month
and kept a revolving outstanding balance, he would carry out his debt almost
throughout the life.
2.5.3 Selection Factors of Credit Cards
Amin (2012) identified the factors to determine the behavioral intention to use
islamic credit card by Malaysian customers. The author used Theory of Reasoned
Action (TRA) model in his research and found that attitude, subjective norms and
perceived financial costs significantly influence the user’s intention to use Islamic

14
credit card. Then the author mentioned some available literature and quoted that
lower and middle income people were prone to use credit card and shopping, bulk
purchase, concept understanding were the key factors determining the satisfaction
of Islamic credit card users.
The author shown a diagram of TRA model in his paper and commented that TRA
model establishes links between beliefs, attitudes, behaviors and intentions. The
author modified the TRA model used by previous researchers and added subjective
norms and attitude as well as perceived financial costs in his study. Then the author
tested three hypothesis related to subjective norms, attitude, perceive financial costs
and intentions. The study was conducted on 257 Malaysians. The findings was that
there was a positive relationship among the intentions to use Islamic credit cards and
attitude and subjective norms. However, negative relationship exists between
intentions and perceive financial costs. The R2 was 0.654 means 65.4% of the
variation in intention can be explained by these variables.
Dali, et al.(2015) conducted a research to find out the factors that determine the
selection of credit cards. The conventional credit card users and islamic credit card
users are compared based on four factors namely convenience, costs, takaful or
insurance and reward points. The authors commented that islamic credit card
issuers have to raise customer awareness of its products and build positive attitude
towards its products. The authors divided credit card users into revolvers who carry
outstanding balance from one month to another and transactors who normally pay
all the outstanding balance in full.
The authors then said that the previous studies on this issue have shown revolvers
are less satisfied than transactors. The cost of service is more significant for the
conventional credit card users than islamic credit card users, the authors quoted
from pervious study. The islami credit card users have higher level religious
education and tend to be transactors rather than revolvers. Takaful or insurance by
credit card issuers is not significant in influencing credit card types. The research
findings are that conventional credit card users emphasize more on convenience and
reward points programme. On the othe rhand, islamic credit card users were
satisfied with the costs factors.

15
Jamshidi and Hussin (2013) used Innovation Diffusion Theory to determine the
conceptual framework for the adoption of Islamic credit card. Some key
determinants in adoption of innovation are relative advantage, complexity,
compatibility, trial ability, observability. The authors used only relative advantage,
complexity and compatibility as a determinants in the adoption of Islamic credit
cards as they are constantly linked to innovation adoption in different context. The
authors commented that complexity is an inhibitor in adoption of innovation. It was
a quantitative research where the researchers used regression analysis, factor
analysis and tested seven hypothesis on credit cards and various factors.
2.6 Shari’ah Stand on Conventional Credit Card
Credit card has many features. The issue of permissibility or non-permissibility is
discussed based on these features. Credit cards provide payment mechanism and
makes life easier. Credit cards have many useful features. There is nothing wrong
with that. One of the basis of Islamic legislation is to remove difficulty and make
things easier (Philips, 2006).
“…Allah wishes for you ease and He doesn’t wish difficulty for you…”
[Al Qur’an 2:185]
“…He didn’t make any difficulty for you in the religion…” [Al Qur’an
22:78]
Credit cards also provide credit facility to the cardholders. If the cardholder doesn’t
pay the full amount in the grace period, he has to pay the interest with the principle.
Interest is prohibited by the Qur’an and Sunnah.
“…But whoever returns [to dealing in interest or usury] - those are
the companions of the fire; they will abide eternally therein.” [Al
Qur’an 2:275]
“O you who have believe, fear Allah and give up what remains [due to
you] of interest, if you should be believers. And if you do not, then be
informed of a war [against you] from Allah and His Messenger. But if

16
you repent, you may have your principal – [thus] you do no wrong,
nor are you wronged.” [Al Qur’an 2:278-279]
The feature of pay now or pay more latter in installments is called revolving accounts.
This is exactly the same as Riba discussed in juristic literature “extend the period for
me and I will increase the amount I owe you” (Eid, 1998).
Contemporary scholars and jurists have taken two views on conventional credit card
about its permissibility. OIC Islamic Fiqh Academy in its twelfth session (Resolution
No. 108, 2/12) resolved that issuing or using conventional credit card that has the
condition of imposing interest is not permissible because of the interest clause even
if the cardholders have the intention to repay the amount in the grace period to avoid
paying any interest.7
Kahf (2008) states that conventional credit card is permissible with two conditions.
The cardholder must pay the amount within the grace period and shun the cash
withdrawals. This is based on the fact that credit card is a necessity in the west today
and the interest clause is optional in credit card that can be avoided.8 Munajjid (2002)
states that conventional credit card is not permissible in general. If there is a
necessity and no other options are available, one may use conventional credit card
with a condition that one has to pay the amount within the grace period. Those who
opine conventional credit cards are permissible gave two conditions and based their
opinions on the fact that credit card is a necessity in the west and interest clause is
optional that can be avoided if full payment is made within grace period and any cash
withdrawal is avoided.
7 The full resolution on credit cards by OIC Fiqh Academy is attached in Appendix C.
8 There is a Ḥadīth of miʿrāj and the example of Prophet Muhammad (s.) where he was offered a drink
of milk or liquor. Narrated by Abu Hurayrah: On the night Allah's Apostle was taken on a
night journey (miʿrāj) two cups, one containing wine and the other milk, were presented
to him at Jerusalem. He looked at it and took the cup of milk. Gabriel said, “Praise be to
Allah, Who guided you to al-fiṭrah (the right natural path); if you had taken (the cup
of) wine, your nation would have gone astray.” (Ṣaḥīḥ Bukhārī)

17
2.7 The Position of debt in Islam
The position of debt in Islam should be discussed in the context of credit card
literature. It is evident from the available literature on credit cards that credit cards
promote consumerism, indebtedness, and extravagance. One is promoted to live
beyond one’s means. Islam doesn’t promote this theme as Allah states in the Qur’an
to eat and drink but not to be extravagance.
“And those, who, when they spend, are neither extravagant nor
niggardly but hold a medium way between those (extremes).” [Al
Qur’an 25:67]
Debt is permissible that doesn’t incur any interest as Allah states in the Qur’an, “O
you who believe! When you contract a debt for a fixed period, write it down” [Al Qur’an
2:282]. This verse states about the permissibility of the contract of debt. Prophet
Muhammd (s.) on one occasion purchased a commodity from a jew on credit. Ayesha
narrated, “The Prophet once bought some food from a Jew and he mortgaged his shield
with this man till he would pay him.”9
Lending is deemed as a benevolent and charitable act in Islam as Allah states, “…and
lend to Allah a goodly loan…” [Al Qur’an 73:20]. Prophet Muhammad (s.) said, “No
Muslims lend a loan to another Muslim twice but it will be like giving it once in
charity.”10 It should be noted that there Qard (loan) and Dayn (debt) is not name, loan
is a one type of debt. The term Dayn or debt has broader dimension than loan or Qard.
Though giving loan is considered as a charitable acts and is promoted but taking loan
unnecessarily is not promoted as it leads to indebtedness and debt accumulation.
Prophet Muhammad (s.) refused to offer funeral prayer for one who had died owning
debt.11 It was also narrated that Prophet (s.) sought refuge with Allah from being in
9 Bukhari and An-Nasai
10 Ibn Majah, 2430
11 Related by Ahmad in his Musnad, “Prophet Muhammad (s) refused to offer funeral prayer
for one who had died owning two dinars, until Abu Qatadah promised to pay it off for
him. When he saw him on following day and said, I have paid it off, the Prophet said,
‘Now his skin has become cool for him.”

18
debt.12 As debt is narrated as a barrier to enter paradise13, Muslims shouldn’t take
debt without necessity.
2.8 Conclusion
Though conventional credit card has a century of history, Islamic credit cards is
relatively a new product. The basic feature of Islamic credit cards is same buying first
and paying latter. The shari’ah experts took two position on the permissibility of
conventional credit cards. Those who opine conventional credit cards are
permissible attached two conditions. Islamic credit card is a debt instrument like its
conventional counterpart. Debt is permissible in Islamic law though taking the debt
is not promoted.
12 Bukhari related that, “Aisha said: The Messenger of Allah used to make dua’ while
performing solat, and used to say: Oh Allah I seek refuge with Thee from sin and from
being in debt. Someone asked him: How often, O Messenger of Allah do youseek refuge
from being in debt? He said: When a man is in debt he speaks and tells lies, and he
promises and breaks the promise.”
13 Prophet (s.) said, “Whoever dies free from three things – arrogance, cheating and debt
– will enter Paradise.” (al-Tirmidhi,1572)

rganizational Profile
Chapter 3
“An Islamic Bank is a Financial Institution whose statutes, rules, and
regulations expressly state its commitments to the Principles of
Islamic Shariah and to the banning of the receipt and payment of
interest on any of its operation.”
--OIC Islamic Fiqh Academy
O

20
3.1 Introduction
Islami Bank Bangladesh Limited is the first Islamic bank in Bangladesh and in this
region also. This chapter aims to introduce Islamic Bank Bangladesh Limited (IBBL),
its activities, commitments to the stakeholders, and its performance in the last five
years in terms of deposit collection, net profit, ROA, ROE etc. IBBL is the leader of
Islamic financial industry in Bangladesh. Islamic financial industry is run side by side
of conventional financial industry in Bangladesh. A brief industry overview is
discussed at the end of the chapter before the concluding section.
3.2 What is IBBL?
Islami Bank Bangladesh Limited (IBBL) is a private commercial leading Islamic bank
in Bangladesh which is based on Islamic shari’ah. IBBL is a Joint Venture Public
Limited Company and the foreign shareholders consist 63.09% of total shareholders.
It has the largest branch network among the private sector Banks in Bangladesh. It is
the first Islamic bank in south-east Asia established on 13th march in 1983. IBBL is
listed on Dhaka Stock Exchange Ltd. and Chittagong Stock Exchange Ltd.
Facts Explanation
Established 1983
Branches 318
Foreign Shareholding 63.09%
Authorized Capital BDT 20,000.00 Million
Paid-up Capital BDT 16, 099.90 Million
Shareholders 33686
Table 3.1: Some Key Facts of IBBL14
14 As on 31st December 2015

21
IBBL aims to introduce welfare oriented banking by maintain equity and justice in all
of its operations. It encourages equitable development and financial services to the
least developed community, especially among the rural people through introducing
special investment schemes. It aims to incorporate modern banking techniques to
achieve global standard. As its commitments to the stakeholders, IBBL introduces
corporate social responsibilities (CSR) throughout its operations and promotes
green banking culture. IBBL is highly committed to the shari’ah directives and
conducts all the activities in interest-free system.
3.3 What IBBL Do?
3.3.1 Deposit
IBBL like any other Bank takes deposits from the customer. However, the modes and
principles of deposits are different from conventional banks. Now, we are going to
discuss the deposit principles and various schemes of deposits used by IBBL.
3.3.1.1 Deposit Principles
Two principles or modes are used by IBBL namely Mudarabah or speculative
partnership and Al-wadiah principles. In mudarabah, Bank acts as a mudarib or
manager and depositor acts as a Rabb-ul Mal or capital provider. The profit is shared
according to pre-determined ratio and loss is born by the depositor or capital
provider. In al-Wadiah, the bank keeps the deposits from the customer by taking the
permission to use the amount. However, the depositors don’t share any risk or loss,
hence no profit also.
3.3.1.2 Deposit Schemes
Current Account is operated on al-Wadeah principle. Besides this, all other accounts
are opened under mudarabah principle.15 Minimum 65% profit earned is divided
among the mudarabah account holders by Islami Bank Bangladesh Limited. In 2014,
34% of deposits are collected under Mudarabah Savings Deposit, 29% are under
15 All the deposit schemes are listed in Appendix F.

22
Mudarabah Term Deposit, 16% are under Mudarabah Special Savings Deposit, and
remaining are under others.16
3.3.2 Investment
Loan or Qard is not a source of earning for Islamic Banks. IBBL uses different
investment modes to generate profit. Different investment principles and modes
used by IBBL are discussed below.
3.3.2.1 Investment Principles
The main mechanisms used by Islamic Banks in general are Bai, Shirkah and Ijarah.
Under this general headings, different modes are operated listed and discussed in the
following section.
Bai-Murabaha is a sale contract where the seller informs the buyer the costs of
product and the added profit, so it is a contract of trust. It is a cost plus sale where a
definite profit is added to the cost. Though Bai-Murabaha can be in cash but Bank
practices the mode as a deferred payment system which is called Murabaha-Muajjal.
Bai-Muajjal is also a sale contract. In this case, the seller doesn’t reveal the cost to
the buyer and the payment is made always in deferred terms.
Hire Purchase under Shirkatul Melk or HPSM is a synthesis of three mechanism
namely bay, share and ijarah. This mode is normally used for house or real estate
financing. The bank and customer purchase the properties in share and then the bank
rents his part to the customer. The customer gradually purchase the share of bank
and the rental payment to the bank is thereby decreased. When the buyer purchase
the whole property, the bank ownership ends.
Mudarabah as a business modes used by the Prophet (peace be upon him) himself
before his prophet hood. The method was very popular among the Arab for many
reason. Allah says in the Qur’an “…and others traveling [yadribuna] throughout the
land seeking [something] of the bounty of Allah...” 17 Here, traveling means traveling
16 Annual Report of IBBL 2015, p. 65
17 Al Qur’an 73:20

23
for business or trade purpose and thereby seeking of the bounty of Allah. The
mechanism of Mudarabah is discussed in the deposit section.
Unlike Mudarabah both the parties invest and bear losses in musharakah. The profit
is agreed among the partners though the losses are born according to the capital
invested.
Bai Salam is a trade mode where the buyer pays the price in advance in full and the
seller delivers the commodity in future in definite time, place and amount.
Bai as-Sarf is used for currency trading. The trading of currency must be on spot thus
the payment can’t be delayed. If the currencies are different then the amount may
differ.
3.3.2.2 Investment Schemes
Based on the above mentioned modes and mechanism, IBBL structured different
investment schemes. In 2014, 62.48% of the investments are made under Bai-
Murabaha mode, 23.36% of the investments are made under HPSM (Hier Purchase
under Shirkatul Melk), 6.57% of theinvestments are made under Bai-Muajjal mode,
and remaining percentage are under other modes. Besides these investment
schemes, IBBL have 22 welfare oriented special investment schemes.18
3.3.3 Foreign Exchange Business
Besides the deposit collections and investment, IBBL handles foreign exchange
businesses also. The main areas handled are import business, export business,
foreign remittance and necessary services relating to foreign exchange. In order to
meet the customer requirements, IBBL has established a wide network with more
than 534 banks over the world.
18 All the investment schemes are listed in Appendix F.

24
3.3.4 Other Services
IBBL also provides some financial and non-financial services to the customers. It
introduces NRB Remittance card, internet Banking namely i-banking, Khidmah credit
card, mobile banking namely mCash, locker services etc.
3.4 Historical Background
Bangladesh Government as a founding member of IDB19 subscribed to its charter
which states to undertake research for enabling the economic and financial activities
to conform to shari’ah in 1974. In 1978 the Islamic Foreign Ministers’ Conference
recommended to establish Islamic Banks gradually in their own country. In 1980,
Bangladesh Bank made study on the operations of Islamic banks abroad. In 1981, the
then president of Bangladesh made suggestions to Muslim nation to make a separate
banking system of their own to facilitate trade among the Muslim nations. In the
meantime, different workshops, symposia were held by different socio-economic
organizations in Bangladesh on Islamic banking system. In 1983, Islami Bank
Bangladesh Limited came into picture as the first Islamic Bank in the Southeast Asia.
3.5 Awards and Recognition
‘The Banker’ included IBBL in the top 939 Global Banks in 2016 as the first banks in
Bangladesh. The Forbes Asia in July issue evaluated IBBL as the best performing bank
in Bangladesh. ‘The Asian Banker’ awarded IBBL as ‘The Best Managed Bank” in
Bangladesh at the Asian Banker Summit held in Vietnam in 2016. Some of the recent
awards achieved by IBBL are ICMAB-Best Corporate Award 2015, NRB Recognition
Award 2015, SAFA International Conference Award 2015, Banking Fair Sponsor
Award 2015, Entrepreneur Award 2015, and BCL Runner-up Award 2015.
19 Islamic Development Bank

25
3.6 Corporate Information20
Legal Status: Public Limited Company Branches: 318
Incorporation: 13th March 1983 AD Branch: 58
Opening of First Branch: 30th March, 1983 Offshore Banking Unit: 03
Authorized Capital: BDT. 20,000.00
million
Deposit: BDT. 673,757.36 million
Paid-up Capital: BDT. 16,099.91 million Investment: BDT. 583,089.68 million
Equity: BDT. 50,237.84 million Foreign Exchange Business: BDT.
711,868 million
Directors: 21 Manpower: 13,080
Sponsors: 36 ATM Booths: Own-493, Shared-6,000
Shareholders: 43,872 IDM: 52
Zones: 16 Local Shareholders: 41.54%
Foreign Shareholders: 58.46%
20 As on 31 October 2016

26
3.7 Organogram
Islami Bank Bangladesh
Limited
Board of Directors
(Chairman)
Shari’ah Supervisory
Committee
Review Committee
Risk Management Executive Committee Audit Committee
Islami Bank
Foundation
Islami Bank
Securities Limited
Islami Bank Capital
Management Ltd.
Managing
Director
Shari’ah
Secretariat
Board Secretariat
Division
Management
Committee
Asset Liability
Committee
Islami Bank Training &
Research Academy
Human Resource
Division
R & D Division
Operations
Wing
Development
Wing
Retail Investment
Wing
Corporate
Investment Wing
ICT Wing Internal Control &
Compliance Wing
International
Banking Wing
Risk Management
Wing
Chart 3.1: Organogram of IBBL

27
3.8 Financial Highlights
Earnings on Equity, net profit after tax and deposit collection are shown below in
graph for the latest five years.
341853.67
417844.14
473140.96
560696.3
615359.21
322772.83
399930.79
474015.95
564332
629631.27
716058
782598
778115
847689
888970
2011 2012 2013 2014 2015
CHART 3.2: DEPOSIT, INVESTMENT AND FX OF IBBL
(IN MILLION)
Total Deposit Total Investment Foreign Exchange Business
1.35
1.27
0.96
0.67
0.44
17.42
13.42
11.36
8.85
6.82
2011 2012 2013 2014 2015
CHART 3.3: ROA & ROE ( IN %) OF IBBL
ROA ROE
4841.45 5338.91 4948.58
3999.06
3029.08
0
1000
2000
3000
4000
5000
6000
2011 2012 2013 2014 2015
CHART 3.4: NET PROFIT (IN MILLION) OF IBBL
Net Profit (in million)

28
3.9 Islamic Banking Industry
There is dual banking system exists in Bangladesh where Islamic banks run side by
side of conventional banks. Among 56 scheduled banks, there are 8 full-pledged
Islamic banks, 9 conventional banks have Islamic banking branches, and 8
conventional banks have Islamic banking windows.
FULL-FLEDGED ISLAMIC
BANKS
BANKS HAVING
ISLAMIC BANKING
BRANCHES
BANKS HAVING
ISLAMIC BANKING
WINDOWS
1 Islami Bank Bangladesh
Limited
The City bank Limited Sonali Bank Limited
2 ICB islami Bank Limited AB Bank Limited Janata Bank Limited
3 Social Islami Bank Limited Dhaka Bank Limited Agrani Bank Limited
4 First Security Islami Bank
Limited
Premier Bank Limited Pubali Bank Limited
5 Al-Arafah Islami Bank
Limited
Prime Bank Limited Trust Bank Limited
6 EXIM Bank Limited Southeast Bank Limited Standard Bank
Limited
7 Shahjalal Islami Bank
Limited
Jamuna Bank Limited Bank Asia Limited
8 Union Bank Limited Bank Alfalah Limited Standard Chartered
Bank
9 HSBC Limited
Table 3.2 List of Banks providing Islamic financial services
The market share of Islamic Banks shows that though the number of Islamic banks
are relatively few, the share in deposit, investment and foreign remittances are
significant and Islami Bank Bangladesh Limited (IBBL) is the market leader of Islamic
financial industry in Bangladesh. The deposits, investments / credits and remittances

29
are compared for Islamic banks and their conventional counterparts for the quarter
April-June 2016.21
Though the number of Islamic banks are only 14% of number of banks operating in
Bangladesh, Islamic banks control one third of deposits, investment and remittances
in banking industry.
21 The information taken from quarterly report on “Developments of Islamic Banking in Bangladesh
April-June, 2016” prepared by Islamic Economics Division of Bangladesh Bank (BB).
Islamic
Banks
14%
Conventi
onal
Banks
86%
Chart 3.5: Proportion of
Islamic Banks
Islamic Banks Conventional Banks
Islamic
Banks
22%
Conventi
onal
Banks
78%
Chart 3.6: Market Share of
Deposits
Islamic
Banks
24%
Conventi
onal
Banks
76%
Credit / Investment
Islamic
Banks
33%
Conventi
onal
Banks
67%
Remittances

30
3.10 Conclusion
Islamic Bank Bangladesh Limited is the first Islamic banks in this region and remains
the market leader of Islamic financial industry in Bangladesh. IBBL maintains a
strong commitment with its stakeholders to serve shari’ah compliant financial
products. Though Islamic financial industry in Bangladesh is not large in number and
dominated by conventional financial industry, Islamic banks control the one third of
deposits, investments, and remittances of the total banking industry.

esearch Methodology
Chapter 4
R

32
4.1 Introduction
The chapter aims to explain the methods of data collection and data interpretation.
The methods used in qualitative data collection through semi-structured interviews
and quantitative data collection through questionnaire surveys are detailed.
4.2 Research Methodology
Research methodology can be understood and defined in various ways. The term
‘research’ literally means ‘to search again’. The researcher searchers something to
get the insight and understand the process. In formal word research is “The
application of the scientific method in searching for the truth” (Zikmund, et al., 2010,
p.5). Methodology is the way the scientists go to find out the answers of factual
questions. The main components of methodology is two, (i) how information is
gatherd, and (ii) how the gathered information is interpreted (Hussin, 2011).
To interpret and analyze the phenomena in social sciences, two research
methodologies are used namely qualitative methodology and quantitative
methodology (Hussin, 2011). Zikmund, et al., (2010) states that, “Qualitative research
allow the researcher to provide elaborate interpretations of phenomena without
depending on numerical measurement, its focus is on discovering true inner meanings
and new insights”. As qualitative researches don’t use the numerical measurement, it
is less structured than quantitative research. Quantitative researches assesses the
numerical data and measures the relationship between variables based on numerical
assessment (Cooper & Schindler, 2014).
Having identified the differences in the methods, it is clear that this study is
qualitative in nature. The various aspects of credit card, especially Khidmah card are
discussed in depth. The survey questionnaire aims to explore the opinions and
attitudes of the credit card holders. The semi structured interviews are also taken to
complement the survey questionnaire and understand the Islamic credit card
operations and issues.
4.3 Research Design
Research design is the plan for collecting, measuring and analyzing the data based on
research questions. Research design indicates the plan for collecting data within a

33
specified time period (Cooper & Schindler, 2014). Research can be designed based
on research objectives. The research conducted on new areas to explore and clarify
the ambiguous situations is called exploratory research. The research that is
conducted to describe the characteristics of the people, object etc., called descriptive
research (Zikmund, et al., 2010).
The present study is a exploratory research as vary few works have been done on
Islamic credit cards and no works have been done in the context of Bangladesh. As
the nature of the exploratory research, this study may be used to guide the
subsequent research on Islamic credit cards. As the research is conducted in
Bangladesh, it is a case study also. It can also be said as a survey research as the study
utilizes the survey questionnaire forwarded to the respondents to know their
opinions and perceptions.
4.4 Research Strategy
Research strategy concerns mainly with research process while research design
deals mainly with research framework. The process of the research may be inductive
or deductive. In inductive method, phenomena or data are observed and analyzed to
reach the conclusion. In deductive method, conclusions are reached by making logical
generalization of a known fact (Hussin, 2011).
The present study on credit card utilizes the inductive method as the conclusions are
reached by analyzing the empirical data and opinions of the survey respondents.
4.5 Research Method
Though the research is qualitative in nature, it utilizes both the qualitative and
quantitative tools in collecting and interpreting data. The research uses mixed or
triangulated method. The study uses quantitative method as in the survey
questionnaire, qualitative method as in the semi structured interviews, and
descriptive method as in the literature review.
4.5.1 Qualitative Data Collection Method – Semi Structured Interviews
Self-administered semi structured interviews with the members of the shari’ah
secretariat of IBBL, bankers, shari’ah experts are one of the main sources of collecting

34
qualitative data on Islamic credit cards, specially Khidmah card. The interviews are
called semi structured because the interview questions are not asked one by one to
find out specific information.
 Semi-Structured Questionnaire for Shari’ah Expert
Q 1. Does Credit Card conform to the Maqasid al-Shari’ah?
Q 2. Is it allowed to charge a fee for loan related services?
Q 3. What is the underlying contracts among credit card parties?
Q 4. What is the underlying contract between card holders and Bank? Wakalah or
kafalah?
Q 5. What is the ruling for buying Gold, Silver with credit card?
Q 6. Is the Hadith of I’nah authentic?
Q 7. IBBL issues different types of credit cards namely silver, gold, platinum and
priority platinum with different credit limit and the charges vary from one type to
another, is it shari’ah compliant?
Q 8. IBBL charges Tk. 150 for each cash withdrawal transaction, is it shari’ah
compliant?
 Semi-Structured Questionnaire for Banker
Q 1. In how much days you pay to the acquirer or merchant?
Q 2. Do you provide the same services in debit card except credit facility?
Q 3. Can you provide the same service in debit card except credit facility?
Q 4. Who is your typical merchant bank?
Q 5. How much credit cards IBBL have been issued up to this day?
Q 6. How does IBBL determine actual fees as suggested by Shari’ah Supervisory
Committee?
Q 7. What is the name of your credit card network companies? VISA or MasterCard?

35
Q 8. What percentage or charges they are paid?
Q 9. What is the shari’ah basis for charging Tk. 150 on each cash withdrawal?
Q 10. Does IBBL charge any interchange fees or earn discount from merchant? If yes,
then what is the percentage?
Besides the interviews, the instruction circular on Khidmah card issued by IBBL, OIC
Fiqh Academy Resolutions on credit cards, Annual report of IBBL, Bangladesh Bank
guidelines on credit card, the previous studies done on this subjects, books and
journal articles are used to collect data.
4.5.2 Quantitative Data Collection method - Survey Questionnaire
A survey is conducted where the sample size is 56 who are the credit card holders
issued by different banks and financial institutions. The survey is conducted in two
process. The online survey is conducted through using google form and offline survey
is conducted by visiting to the credit card holders. The snowball sampling and
convenience sampling methods are used to collect data from the respondents. Most
of the Khidmah card holders are IBBL employee as a part of the survey is conducted
in the local office of IBBL, Dhaka.
The questionnaire consists of total 26 questions, divided into three parts. The first
part takes the general information about respondents and their knowledge and
understanding on Islamic credit cards. The second part consists of the statement to
determine the credit card impacts and third part searches the determinants of credit
card selection. The survey is conducted both on Khidmah card holders and non-
Khidmah card holders to compare the findings.
Descriptive analysis like mean value, graphical presentation through charts are used
to compare the findings. The full questionnaire is attached in Appendix B.
4.6 Limitations & Difficulties
The main difficulty faced during the research is time. It is very difficult to gather the
required data, conduct surveys within one and half month. It is also difficult to find
out who have the credit cards as well as Khidmah cards. The sample size is only 56
that is the main limitation of the study.

36
4.7 Conclusion
The study as indicated past is qualitative in nature. The data collected through
primary sources and secondary sources are used to get insight the various aspects of
Khidmah card. Simple descriptive statistics is used to find out the mean value of
various respondents opinions.

haracteristics & Working
Mechanism of Khidmah Card
C Chapter 5

38
5.1 Introduction
This chapter aims to explain the facilities provided by credit cards and why credit
card is different from debit and charge card are explained also. The facilities provided
by Khidmah and its working mechanism along with fees structure are discussed
throughout the chapter.
5.2 Khidmah Card Facilities
Credit card is used as a plastic money instead of hard currency. One doesn’t have to
carry cash if one have a credit card. Credit card holders entertain a credit limit set by
the issuers according to holders’ credit worthiness. A grace period is also provided
within which no interest is charged. The most distinct facility in credit card is
revolving credit facility that is absent in debit or charge card. The card holders can
repay the minimum balance and carry the outstanding balance for the next month.
Interest is charged on outstanding balance. There are also rewards and loyalty
programs offered by issuers to attract the customers. Many of these facilities are also
present in debit and charge card. The facilities are compared among these three types
of cards in figure below.
Table 5.1: Comparison of Debit, Credit & Charge Card
Facilities Debit Card Charge Card Credit Card
1. Plastic card replacing cash
2. Credit limit
3. Revolving credit facility
4. Grace period
5. Rewards & loyalty programs
All the facilities mentioned above are present in Khidmah card. IBBL issues four types
of Khidmah card namely silver card, gold card, platinum card and priority platinum
card based on the creditworthiness of the customers. The grace period is 15 days
from the statement date. Card holders can use revolving credit facility. The minimum
amount that have to be paid is equal to the 5% of amount used or Tk. 2000 for silver
card, Tk. 4000 for gold card, Tk. 6000 for platinum card and Tk. 8000 for priority

39
platinum card. There is also cash withdrawal facility available up to 50% of credit
limit.
5.3 Working Mechanism of Khidmah Card
Credit card payment system usually consists of two stages. When the cardholders
swipe the card, an information is sent to the bank for approval. Approval of the
transaction is the first step and second step is the settlement part. In the whole
process, there are five parties involved namely cardholder, merchant, acquirer or
merchant bank, card issuer and network company (Hussin, 2011). A typical working
mechanism is depicted in diagram 5.1.
Cardholder: Cardholders are the customer of the bank. The primary cardholders
must be above 18 years old, this is also the age for supplementary card holders
according to the instructions on credit card by Bangladesh Bank (BB). The
supplementary card can be issued to the student who are in between 16-18 years old
for educational purposes, according to the circular. To be eligible for Khidmah credit
card, one have to be at least 21 years old as a primary card holder. The supplementary
card holders should be at least 18 years old.22
Merchant: Merchant is a business institution who accept the credit cards as a
payment mechanism. Accepting credit cards boost merchant’s sales (Hussin, 2011).
Merchant have to maintain a merchant account with a merchant bank to avail this
facility and
Acquirer: Acquirer is a merchant bank who maintains the accounts for merchants.
Acquirer collects the money from the issuer bank and deposits the money in the
merchant account of the merchant. Acquirer is the member of credit card
associations like VISA, MasterCard etc.
Card issuer: Card issuer is usually the bank or financial institutions that issue card
to the customers and provides credit facilities. Card issuer pay to the acquirer for the
transactions made by cardholders usually in 24 to 48 hours. Card issuer then collects
the amount from the cardholders. The usual earnings of issuer come through
22 The information is taken from Khidmah card circular issued by IBBL date on 31.08.2016

40
charging customer for annual fees, over limits, cash advance, and merchant discount
etc.23 Card issuer is also the member of credit card associations. Islami Bank
Bangladesh Limited (IBBL) is the issuer of Khidmah credit card.
Network Companies: Network companies, also called credit card associations
connect the related parties. The network company can be two types namely open
network and proprietary network. Open network companies follow open
membership policies with card issuer, acquirer and jointly develops policies to
maintain the network. VISA and MasterCard follows open network system. In
proprietary network system, Network Company plays the roles as an acquirer and
issuer also like American Express. Khidmah card uses VISA network facilities. VISA
uses their VisaNet network to transmit data among the members.
Step 01: Cardholder swipe the Khidmah card and make purchases from the merchant.
IBBL approves the transactions.
Step 02: Acquirer reimburses to the merchant account.
Step 03: IBBL pays the amount purchases to the merchant bank or acquirer within
24 to 48 hours. Acquirer and IBBL both are the members of VISA Network Company
and connected through VisaNet.
23 The shari’ah permissibility of these earnings will be discussed in chapter 7.
Card
holder
Merchant
IBBL Acquirer
VISA
Network
1
3
4
Flow of money
Flow of Goods
VISA
Network
Diagram 5.1: Working Mechanism of Khidmah
2

41
Step 04: Khidmah card holder reimburses the amount to the IBBL.
5.4 Charging structure in Khidmah Card
IBBL charges different fees for providing Khidmah to the card holders. Some fees are
different according to the card types and other fees are same at a flat rate irrespective
or credit limit. The charging structure in Khidmah Card is detailed in below with the
explanation of the charges.
Annual/renewal fees: This is the fixed fee, Tk. 1500 for silver card, Tk. 2000 for gold
card, Tk. 2500 for platinum card, and Tk. 3500 for priority platinum card. The annual
fees for the next year may be waived if the cardholder uses a specified minimum
amount in the previous year. The minimum amount is Tk. 1.50 lac for silver card, Tk.
2.50 lac for gold card, Tk. 3.00 lac for platinum card and Tk. 3.50 lac for priority
platinum card. The dignified persons, IBBL confirmed employee and professionals
are exempted from annual or renewal fees. The confirmed employee of other banks
are also waived from 50% if renewal fees. There is no annual fee for supplementary
card.
Monthly management fees: There is different monthly management fees for
different card types, Tk. 500 for silver card, Tk. 1000 for gold card, Tk. 1500 for
platinum card, and Tk. 2500 for priority platinum card. The monthly management
fees are only charged if the outstanding balance remains Tk. 100 or above on the last
payment date. The last payment date is from the 15 days from the statement date.
Monthly over limit charge: Cardholders can use up to Tk. 5000 as over limit amount
and are charged Tk. 500 for over limit facility.
Compensation for late payment: If the minimum amount is not paid within due
date, a compensation is charged that is used for charitable purpose means don’t
become the part of bank’s earnings. The charge is Tk. 500.
Cash withdrawal fees: Khidmah card holder can withdraw up to 50% of his credit
limit. The bank charge Tk. 150 for each time of cash withdrawal.

42
Other fees: The other fees include card replacement fee, PIN replacement fee, fund
transfer fee, card cheque book issue fee, card cheque transaction fee, returned
cheque fee, sales voucher retrieval fee, monthly account statement fee, CIB
processing fee. VAT will also be included on charges and fees according to
government rules.
5.5 Conclusion
Khidmah is a new product in Islamic financial industry issued by Islami Bank
Bangladesh Limited (IBBL). The working mechanism of Khidmah card is no more
different from the mechanism of other credit card in its technical sides. Khidmah is a
VISA card. IBBL charges Khidmah cardholders for annual fees, monthly maintenance
fees, cash withdrawal fees, and compensation for late payment and other fees. The
compensation for late payment is used for charitable purposes.

hidmad Credit Card Model
Chapter 6
K

44
6.1 Introduction
This chapter aims to explain the credit card models or structures used or so far
developed by practitioners and academicians. The structure used in Khidmah card
issued by IBBL is also discussed. The structures can be classified into two broad
categories. One type is popular models are being used by most Islamic credit card
issuers and another type is innovative or less popular models are suggested by
researchers or used by few Islamic credit card issuers. Bai al-I’nah model, Tawarruq
model and Ujrah model are the popular models. The innovative models include
Murabaha model, Ijarah model, al-Muqassa model. The following sections offer the
explanation of these models or structures.
6.2 Popular Models
The following sections will discuss the popular models namely Bai al-I’nah model,
Tawarruq model and Ujrah model. These models are widely used by Islamic financial
institutions and gained wide criticism also. Am Bank first introduced the I’nah model
in their credit cards named Al-Taslif Credit Card in 2001. Tawarruq model was
introduced by Bank Rakyat in 2008 and Ujrah model was introduced by HSBC
Amanah and EON CAP Islamic Bank Berhad (Noor & Azli, 2009).
6.2.1 Bai al-I’nah Model
I’nah model is mainly based on Bai I’nah contract. I’nah is a buy back contract in
which the lender and borrower sell and then resell the commodity between them,
once for cash and another for higher price in credit (Ayub, 2007). The objective of the
I’nah is to put the money or cash in the hand of the borrower. I’nah model also
consists two other contracts namely Wadi’ah24 and Qard al-Hasana25 contracts (Bilal
& Meera, 2015). The typical credit card issued in I’nah model is depicted below with
step by step procedure.
24 Wadi’ah comes from the word Wada’ah means to leave, lodge or deposit. It is the contract of
safekeeping of the customer deposits by the Islamic financial institutions.
25 Qard al-hasana is the benevolent loan where the borrower repay the same amount to the lender
without incurring any additional charge or interest.

45
Step 01: Bank sells a specified asset to the customer at p+r price for deferred payment
basis. Here p is the spot price or cost and r is the profit or markup. P is equal to the
amount of credit limit provided to the customer according to his request and
creditworthiness.
Step 02: Customer sells the asset to the customer at p price in cash. The amount is
credited to the customer credit card account maintained under al-Wadi’ah principle.
Step 03: Customer makes purchases from the merchant.
Step 04: Bank makes payment to the merchant on behalf of the customer.
Step 05: Customer reimburses the outstanding amount to the bank in installments.
In case of cash withdrawals, the bank provides Qard al-Hasana to the client within
the credit limit of the customer. It is the basic I’nah structure of credit card. However,
the facilities and charges may differ from bank to bank who use I’nah structure.
Bank Customer
Merchant
(1) Bank sells specified assets to Customer at p+r
price for deferred payment.
(2) Customer sells the assets to the bank at p price
for cash payment.
Wadi’ah
Account
(3)Bankcreditedtheamountin
customercreditcardaccountand
maintainstheaccount.
(3)Customerbuysfromthe
merchants.
(4) Bank pays the amount to the merchant from
the customer’s al-Wadi’ah credit card account.
Diagram 6.1: al-I’nah Model

46
6.2.2 Tawarruq Model
Tawarruq is almost similar to I’nah. Tawarruq can be defined as a form of
transactions where one party buys commodity with deferred price and immediately
sell it to third party in cash (Noor & Azli, 2009). The difference is the third party
involvement in Tawarruq model. The objective here is also to obtain immediate cash.
Tawarruq model consists of three contracts namely Wa’ad26, Tawarruq and Wadi’ah
(Bilal & Meera, 2015).
The customer or client promises to buy the commodities from the bank or card
issuer. The bank then buy the commodity from the supplier or broker in cash price.
The bank sell the commodity to the customer in deferred payment with a markup
profit. The customer sells the commodity to the broker in cash price. The price is
deposited in customer Wadi’ah account. The amount in wadi’ah account is the credit
limit of the customer and the bank debited the account for every purchase made by
the customer. The original commodity supplier and final commodity buyer may be
different broker as practiced by Bank Rakyat. However, there are predetermined
arrangement among the brokers and banks. That’s why it is called Tawarruq
Masrafiy.27 The step by step procedures are depicted and explained below.
26 Wa’ad means promise is different from contract or aqd. The legal rulings of promise and contract
are different in Islamic law.
27 Tawarruq Masrafiy means organized Tawarruq. OIC Fiqh Academy disallowed organized tawarruq
in its 17th meeting. However, Shari’ah Advisory Council of Bank Negara Malaysia allowed it.

47
Step 01: Customer promises or makes wa’ad to purchase the commodity from the
bank.
Step 02: Banks purchases the specified commodity from the broker at cash price p.
Step 03: Customer buys the commodity from the bank at deferred price p+r. r is the
markup or profit for the bank.
Step 04: Customer appoints bank as his agent to sell the commodity to the broker at
cash price p.
Step 05: Bank sell the commodity and deposits the amount in the customer credit
card account under Wadi’ah principle. This is the credit limit for the customer.
Step 06: Customer makes purchases from the merchants.
Step 07: Bank repays the amount and debited the customer wadi’ah account.
Broker Bank Customer
(1) Customer promises to the
bank to buy the commodity.
(2) Bank makes purchase
from broker at cash price p.
(3) Customer buys the
commodity at p+r in deferred
payment.
(4) Customer or bank as an
agent of the client sell the
commodity to the broker at
cash price p.
Wadi’ah
Account
(5)Theamountis
creditedtocustomer’s
Wadi’ahaccount
maintainedbybank.
Merchant
(6)Customermakes
purchasesfrom
merchants.
(7) Bank repays the amount
from the Wadi’ah credit card
account.
Diagram 6.2: Tawarruq Model

48
6.2.3 Ujrah Model
Ujrah stands for service fee or counter value (Bilal & Meera, 2015). This model is
solely based on charging different fees for the service provided. The main service is
the payment mechanism provided by the card issuer to purchase products and
services from the merchants (Kahf & Mohomed, 2016). Bank provides a credit limit
according to the credit worthiness of the client. The client swipes the card to
purchase from the merchants and bank provides kafala28 service by guaranting the
payment to the merchants on behalf of the customer.
The bank pay the amount to the merchants on behalf of the customer as a wakil and
provides wakalah service. The clients latter reimburses the amount. In case of cash
withdrawal, the bank provides Qard al-Hasana to the clients and charges cash
advancement fee. Ujrah model comes with different charges for kafalah, wakalah
28 Kafala means guarantee. The guarantor provides guarantee that in case of borrower default, he
will repay the amount.
Bank Customer
Merchant
(1) Bank issues card based on Ujrah and charges
fees based on card types i.e. platinum, gold, and
silver.
(5) Customer reimburses the amount outstanding
to the bank.
Credit Card
Account
(2)Bankallocatesacreditlimit
tothecustomeronhiscredit
cardaccount.
merchantsbyswipingthecard.
(4) Bank pays the amount to the merchant
on behalf of the customer.
Diagram 6.3: Ujrah Model

49
services along with management fees, cash advancement fees, card issue fees, card
renewal fees etc. The step by step procedure is depicted with a diagram 6.3.
6.3 Innovative Models
Innovative models include Murabaha model, Ijarah model and al-Muqassa model.
These models are suggested by researchers and academician that offer more-shari’ah
compliant features that solve the issues in current popular models. These models are
not widely used. Kuwait Finance House (Bahrain) is the rare provider of credit card
based on Ijarah namely Baytik Ijarah Card (Kahf & Mohomed, 2016).
6.3.1 Ijarah Model
Ijarah derived from the word al ‘Ajr means consideration, substitute, compensation,
counter value or I’wad. In Islamic commercial law, Ijarah is defined as a contract of
renting or hiring against a lawful consideration for a specified time to benefit from
the usufruct of specified asset or commodity (Ayub, 2007).
Bank Customer
Merchant
(1) Bank issues card based on Ijarah and appoints
the client as agent.
(5) Customer take lease from the bank and pays
the rent and principle amount in installments.
Credit Card
Account
(2)Bankallocatesacreditlimitto
thecustomeronhiscreditcard
account.
(3)Customerbuysfungibleassets
fromthemerchantsasanagentof
thebankfromthemerchants.
and owns the assets.
Diagram 6.4: Ijarah Model

50
Ijarah model utilized in Baytik Ijarah Card is based on contract of Ijarah. The
cardholders purchases the products or commodities from the merchants on behalf of
the bank. The customer acts as a wakil or agent in this purchase. The customer take
lease of the asset for specified rent. The rent amount along with principle amount is
paid by the customer in installment. The customer fully own the asset after making
all the installments including rental and principal amount. The limitations of this card
is that all the assets can’t be leased. This type of card can be utilized only for fungible29
assets that can be leased (Kahf & Mohomed, 2016). The step by step procedure is
discussed below with explanation.
Step 01: Bank issues credit card based on Ijarah to the clients.
Step 02: Bank allocates credit limit according to the creditworthiness of the client.
Step 03: Client purchases the fungible commodities that can be utilized and used
without consuming their corpus or substance (‘Ain) as an agent of the bank from the
vendors. Client take the possession of the assets and take lease the asset.
Step 04: Bank pays the amount to the merchants.
Step 05: Clients make periodical payments consisting of principal amount and rent.
Step 06: After full payment, client become the owner of the assets.
6.3.2 Murabaha Model
Murabaha is the cost plus profit sale where the cost and the markup are informed to
the buyer. Murabaha credit card model consists of two contracts namely Murabaha
contract and Wakalah contract. The cardholder purchases the products from the
merchant as an agent on behalf of the bank. The client then sell the products to
himself on Murabaha basis. The profit or markup is added to the original cost. The
client repays the amount in installment.
29 The type of products or assets that can be utilized or used without consuming their corpus or
substance (A’in)

51
Step 01: A master Murabaha agreement is signed between the customer and the
banks.
Step 02: Bank approves a credit limit to the client according to the creditworthiness
of the clients.
Step 03: The client purchases from the vendors as an agent of the bank and bank
becomes the owner of the assets through constructive possession.
Step 04: The amount is paid to the merchants by the bank.
Step 05: The client sell the goods to himself through Murabaha basis. The profit or
markup is added to the original cost.
Step 06: The client repays the outstanding balance in installments.
In this model, the cash withdrawal facility can’t be entertained if entertained bank
shouldn’t charge on cash withdrawals. As the contract is murabaha, the gold and
silver can’t be bought through this credit card mechanism (Kahf & Mohomed, 2016).
Bank Customer
Merchant
(1) A master Murabaha agreement is signed
between bank and customer by stating a credit
limit.
(5) Customer sells the assets to himself through
Murabaha basis with profit added to the cost and
pays the amount in installments.
Credit Card
Account
account.
(3)Customerbuysassetsfromthe
merchantsasanagentofthebank.
Bankistheactualownerofthe
goods.
and owns the assets through constructive
possession.
Diagram 6.5: Murabaha Model

52
6.3.3 Al-Muqassa Model
Muqassa literally means set-off. The discharge of one debt against another debt with
the mutual consent of debtor and creditor is called Muqassa al-Ittifaqiya or
contractual set-off. Bilal & Meera (2015) suggested al-Muqassa model for Islamic
financial institutions as a model of credit card. Each person is granted a credit limit
by the bank. The persons can purchase and sell the commodity. The bank guarantee
the payment. At the end of the period, the clients have to make up their negative
balances while the positive balance holder can withdraw the amount if they wish.
The cash flow among 3 persons is illustrated below as an example in diagram 6.6.
At the end of the period the net effect of the transactions are shown below which will
be settled. C have to reimburse his negative balance while B can withdraw the
amount or utilize the extended credit limit for the next period.
Credit
Limit
A: 1500 B: 2000 C: 1800
A: 2000 B: 1500 C: 1800
(1) A sells 500 worth of goods to B.
Flow of Credit
A: 2000 B: 2300 C: 1000
(2) B sells 800 worth of goods to C.
1
2
A: 1500 B: 2300 C: 1500
(3) A buys 500 worth of goods from C.
3
Diagram 6.6: Flow of transactions

53
A: 1500 – 1500 = 0
B: 2300 – 2000 = 300
C: 1500 – 1800 = (300)
The bank doesn’t need to pay cash to the merchants for every transaction. The bank
will set the credit limit to the cardholders who are interconnected by the card
network companies like MasterCard, VISA network etc. The parties make
transactions in the specified period and only the net amount will be adjusted at the
end of the period. The bank charges Ujrah or fees for maintaining the system and
account. The step by step procedures are depicted below with further explanation.
Step 01: Bank allocates a credit line to the customers according to their credit
worthiness. No cash payment is made by the bank.
Customer
A
Bank
Credit-line
Account
(1) Bank issues credit card on al-Muaqassa model
and charges membership fees for specified period.
(5) Customer sells the assets to himself through
Murabaha basis with profit added to the cost and
pays the amount in installments.
Customer B
(4)CustomerAutilizescredit
cardtopurchasegoodsfrom
customerB.
(2)Acreditlimitisallocatedto
thecustomerbasedonhiscredit
worthiness.
(5) Bank adjusts the account of both
customers by credited the positive balance
holder and debited another.
Diagram 6.7: al-Muqassa Model
(3) Credit line account
utilized by the
customer.

54
Step 02: The customers utilizes the credit line to make purchases from the
merchants. The bank will provide guarantee to the merchants on behalf of the
customers.
Step 03: At the end of the period, the bank adjusts the account of the customers
among themselves. The customers who have negative balance have to pay the
amount in cash to settle the debt. The positive balance holder have two options. They
can withdraw the amount or keep the extended credit for the next period.
In the above example, customer B has positive balance while C has negative balance.
C have to pay the amount in cash and B can withdraw the amount. The net effect will
be Zero, the bank doesn’t need to provide any cash to any party. No cash withdrawal
facility can be entertained in this model as the bank doesn’t deposit any amount in
the credit card account (Bilal & Meera, 2015).
6.4 Khidmah Card Model
This section explains the structure used in Khidmah Credit Card issued by Islami
Bank Bangladesh Limited (IBBL)30. The bank charges different fees based on card
types and credit limit for the Khidmah or service provided to the customer. The fees
are charged at a flat rate irrespective of the amount. The charges vary according to
card types and credit limit. The model resembles Ujrah based credit cards. The step
by step procedures of Khidmah card is depicted below with explanation.
30 The information provided in this section is taken from IBBL Instruction Circular No.
RIW/RC&REID(KHIDMAH)/2016/1490

55
Step 01: IBBL issues credit card based on Khidmah concept and charges Ujrah or
service fees. The fees vary according to the card types namely silver, gold, platinum
and priority platinum. To avail a Khidmah card, a salaried person have to earn
BDT.20000 at least and a businessman have to earn BDT.50000 at least.
Step 02: Bank allocates a credit limit to the customer on his credit card account based
on card types. The fees are charged at a flat rate within the limit of a card type. The
fees also vary by the type of the customers and minimum account balance. The full
list of charges in the instruction circular is attached in Appendix A. The main two fee
structure namely yearly renewal fees and monthly maintenance fees are illustrated
below.
IBBL Customer
Merchant
(1) IBBL issues khidmah card based on Khidmah
concept and charges fees according to card types
namely silver, gold, platinum, priority platinum.
(5) Customer reimburses the amount outstanding
balance to the bank.
Credit Card
Account
accountbasedoncardtypes.
merchantsbyswipingthecard.
(4) Bank pays the amount to the merchant on
behalf of the customer.
Diagram 6.8: Khidmah Card Model

56
Card Types Credit Limit Yearly/Renewal
Fees
Monthly
Maintenance Fees
Silver Up to BDT.100000 BDT.1500 BDT.500
Gold Up to BDT.200000 BDT.2000 BDT.1000
Platinum Up to BDT.300000 BDT.2500 BDT.1500
Priority Platinum Up to BDT.500000 BDT.3500 BDT.2500
Table 6.1: Types of Khidmah Card
Step 03: Customer buys from the merchants and IBBL guarantee the payment to the
merchants. Bank may not be liable for purchasing any non-shari’ah compliant
products. Customer may make cash withdrawal up to 50% of credit card limit. Cash
withdrawal fee for each transaction is BDT. 150 irrespective of card types.
Step 04: Bank pays the amount to the merchant on behalf of the customer.
Step 05: Customer reimburses the outstanding balance to the bank. The payment due
date is the 15 days from the statement date and customers have to pay at least 5% of
amount used or BDT.2000 for silver card, BDT.4000 for gold card, BDT.6000 for
platinum card, BDT.8000 for priority platinum card, whichever is higher. No charges
will be imposed if the balance remains below BDT.100 on the last day of payment.
6.5 Conclusion
I’nah model is based on Bai al-I’nah contract where two sales are consecutively
conducted one for deferred payment and another for cash. The amount is credited to
the credit card account and customer can utilize the amount like conventional credit
card. The only difference between Tawarruq and I’nah is that there is third party
involvement in Tawarruq. Ujrah model comes with different charges for providing
payment mechanism and other services by the bank. The Khidmah card of IBBL uses
Ujrah model. The Ijarah model can be used only for fungible assets where the
cardholder take the assets for rental payments. The Murabaha and Muqassa model
are not yet used by any financial institutions.

hari’ah Aspects
Of Khidmah Card
Chapter 7S

ISLAMIC CREDIT CARD: STRUCTURES & ISSUES WITH SPECIAL FOCUS ON KHIDMAH CARD OF IBBL

ISLAMIC CREDIT CARD: STRUCTURES & ISSUES WITH SPECIAL FOCUS ON KHIDMAH CARD OF IBBL

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ISLAMIC CREDIT CARD: STRUCTURES & ISSUES WITH SPECIAL FOCUS ON KHIDMAH CARD OF IBBL