Bangladesh Bank bars profit from Islamic credit cards

Bangladesh Bank (BB) has issued its first full guidelines on Islamic credit cards, barring banks from earning more when customers' debts grow or when they pay late.

In the guidelines, issued today, the central bank said any scheduled bank offering Islamic banking services may issue taka cards.

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Foreign-currency and dual-currency cards require authorised dealer status, meaning the bank must be licensed to deal in foreign exchange.

How the card works

Every purchase on credit, cash advance or delayed payment will be treated as Qard Hasan, an interest-free loan.

The bank cannot charge anything for the money lent. It may charge only fixed service fees (ujrah) for specific, identifiable services.

The cards cannot be funded from Mudarabah deposits, which are investment deposits that customers place with the bank to earn a share of the profit.

What banks can charge

Fees linked to lending, such as card issuance, renewal, account maintenance and cash advances, cannot exceed the "actual direct cost" of providing the service.

The bank cannot make a profit on them. The guidelines say a bank "should not expect" any margin from cardholders.

Any charge that changes with the outstanding balance, the credit limit or the length of delay is banned.

Banks also cannot pass the merchant discount (the commission shops pay the bank on card sales) on to cardholders. Any excess collected must be refunded at year-end or given to charity.

If a card costs Tk 800 a year to issue and maintain, the bank can charge at most Tk 800 as a fixed fee. It cannot charge 2 percent of the credit limit, since that would rise with the limit rather than reflect the bank's cost. A cash advance fee must likewise be a flat amount, not a percentage of the money withdrawn.

Late payments

Cardholders must pledge upfront to donate a fixed sum to charity if they miss a due date. The bank cannot keep this money as income. Because the sum is fixed, it cannot increase with the length of the delay.

If the agreed amount is Tk 500, a customer who pays two days late and one who pays two months late will both donate Tk 500, not more.

Customer protections

Applicants get a five-business-day cooling-off period during which they can withdraw. Banks must give 30 days' notice before changing any charges or terms.

The bank, not the cardholder, bears losses from fraud, and unauthorised transactions made after a card is reported lost or stolen must be refunded within seven working days.

Cash withdrawals are capped at 50 percent of the credit limit, and banks must set limits conservatively to prevent customers from over-borrowing.

Blocked spending

Cards cannot be used for goods or services forbidden by Shariah. Banks must block such transactions at the point of sale using the Merchant Category Code, which identifies a shop's type of business.

Blocked categories include alcohol, gambling, tobacco and crypto trading.

Banks must carry out annual Shariah audits and file a consolidated return with BB within two months of the financial year-end. Any income found to be non-compliant with Shariah must be donated to charity.

BB said it may amend the rules and issue further clarifications.