TAWARRUQ BASED CREDIT CARD TAWARRUQ CREDIT CARD 2023
A Tawarruq credit card in 2023 is based on a sequence of sale transactions that allow a cardholder to obtain cash or purchase goods/services while ensuring the transactions remain compliant with Islamic principles.
The role of a Tawarruq credit card is to provide Muslims and others interested in ethical banking with a Shariah-compliant alternative to conventional credit cards. It allows users to benefit from credit card facilities without engaging in interest-based transactions or other non-permissible activities.
The Twarruq based credit card objectives are to provide cardholders with easy access to credit for purchasing goods and services or obtaining cash and to give users an option to manage their finances in a manner consistent with their beliefs, without compromising the convenience and benefits of modern banking.
The Tawarruq mechanism is widely used in Islamic finance to create liquidity and provide credit solutions, but it's always good to consult with knowledgeable scholars or experts when considering such financial products.
WHAT IS THE DIFFERENCE BETWEEN A TAWARRUQ CREDIT CARD AND OTHER ISLAMIC CREDIT CARDS, LIKE MURABAHA OR QARD AL-HASAN?
Differences Between Tawarruq, Murabaha, and Qard al-Hasan Credit Cards:
1. Tawarruq Credit Card:
- Mechanism: Tawarruq involves the bank purchasing a commodity and selling it to the customer on a deferred payment basis with a markup. The customer then sells the commodity to obtain liquidity.
- Profit Source: The bank earns profit through the markup in the deferred sale transaction.
- Usage: Used to offer credit facilities in a Shariah-compliant manner without directly charging interest.
2. Murabaha Credit Card:
- Mechanism: In Murabaha, the bank purchases a specific item that the customer wants and then sells it to them at a higher price, with the markup disclosed upfront.
- Profit Source: The bank's profit is the difference between the purchase price and the sale price, which includes the markup.
- Usage: Typically used for specific purchases rather than general credit facilities.
3. Qard al-Hasan Credit Card:
- Mechanism: Qard al-Hasan is essentially a benevolent loan, where the bank lends money without charging any profit or interest.
- Profit Source: The bank does not earn profit from the loan itself. However, some banks may charge a minimal service fee to cover administrative costs (this fee should not be profit-generating).
- Usage: Ideal for individuals seeking short-term, interest-free financial assistance.
TAWARRUQ MECHANISM IN THE CONTEXT OF A CREDIT CARD
The Tawarruq mechanism, when applied to a credit card, provides a Shariah-compliant solution that enables cardholders to access credit facilities without the involvement of interest (Riba). Here's how the process typically works:
- Asset Purchase: Initially, the bank purchases a tangible asset or commodity from the market on behalf of the cardholder.
- Deferred Sale: The bank then sells this asset to the cardholder on a deferred payment basis. This price includes a markup or profit margin, making it higher than the initial purchase price.
- Immediate Resale: Almost immediately, the cardholder sells back the asset to the bank (or to a third party) at its original price. This generates the credit or cash equivalent that the cardholder can utilize.
- Repayment: Over time, the cardholder repays the deferred sale amount (the principal plus the profit) in installments. This repayment does not involve any additional interest, keeping the transaction Shariah-compliant.
This structure ensures that the credit card operates without charging or earning interest, which is prohibited in Islamic finance. Instead, the profit for the bank is derived from the markup in the deferred sale transaction.
WHAT ARE THE BENEFITS OF USING A TAWARRUQ CREDIT CARD?
Benefits of Using a Tawarruq Credit Card:
- Shariah-Compliant: Tawarruq credit cards adhere to Islamic finance principles, ensuring that transactions remain free from riba (interest) and other prohibited activities.
- Ethical Transactions: The Tawarruq mechanism promotes ethical and transparent financial dealings, making it a preferred choice for individuals who prioritize ethical banking.
- Transparent Fee Structure: Since Tawarruq credit cards do not charge interest, users can enjoy a clear fee structure with a known profit margin incorporated into the deferred payment.
- Accessible Credit: Tawarruq credit cards provide users with easy access to credit for purchasing goods and services, similar to conventional cards but without the interest charges.
- Flexibility: They offer cardholders the convenience and benefits of modern banking in a manner consistent with their beliefs, often with competitive repayment terms and benefits.
- Global Acceptance: Tawarruq credit cards affiliated with major networks (like Visa or Mastercard) are widely accepted both domestically and internationally.
- Additional Benefits: Depending on the issuing bank, Tawarruq credit cards might also come with added perks such as reward points, cashback, or discounts at partner merchants.
HOW CAN I APPLY FOR A TAWARRUQ CREDIT CARD, AND WHAT ARE THE ELIGIBILITY CRITERIA?
Applying for a Tawarruq Credit Card:
1. Application Process:
- Research: Start by identifying banks or financial institutions that offer Tawarruq credit cards in your region.
- Online Application: Many banks allow you to apply online by filling out an application form and submitting the necessary documents.
- Branch Visit: Alternatively, you can visit the bank's branch, meet with a representative, and fill out the application form in person.
- Document Verification: The bank will verify the submitted documents and review your application.
- Approval: Once approved, the bank will issue and send your Tawarruq credit card to your registered address.
2. General Eligibility Criteria:
- Age: Most banks require applicants to be of a certain age, typically 18 or 21 years and above.
- Income: Applicants may need to meet a minimum monthly or annual income requirement set by the bank.
- Employment: Proof of steady employment or a stable source of income is usually required.
- Residency: Depending on the bank, only residents or citizens of a particular country or region might be eligible.
- Credit History: Some banks might check your credit history to determine your creditworthiness.
- Documentation: Typically, banks will ask for identity proof (like a passport or national ID), proof of income (like salary slips or tax returns), and proof of address (like utility bills or lease agreement).