BB bars extra earnings, rising penalties in Islamic credit card

Credit card usage

Dhaka, Sept 29 - Bangladesh Bank (BB) has issued its first comprehensive operational guidelines for Islamic credit cards, prohibiting commercial banks from generating extra revenue from growing customer debts or delayed bill payments.

According to the directive issued by the central bank on Tuesday, any scheduled bank currently offering Islamic banking services is eligible to issue Taka-denominated cards. However, banks must hold Authorised Dealer (AD) licences to issue foreign currency or dual-currency cards.

Under the new policy, all credit purchases, cash advances, and delayed payment periods will be treated strictly as “Qard Hasan” (an interest-free loan).

Banks are prohibited from charging any profit or interest on these loan amounts. They can only levy fixed service fees (Ujrah) for specific, identifiable services rendered. Furthermore, banks are barred from using Mudarabah deposit funds—where depositors place money to earn profits—to finance credit card operations.

Service charges, including card issuance, renewal, account maintenance, and cash withdrawal fees, cannot exceed the "actual direct cost" incurred by the bank.

The central bank also restricted banks from passing merchant discount commissions on to cardholders. Any excess funds collected under this head must be refunded to customers at year-end or donated to charity.

Elaborating on the fee cap, BB stated that if issuing and maintaining a card costs a bank Tk 800 annually, the maximum service fee charged cannot exceed Tk 800.

Charges benchmarked as a percentage of the credit limit (e.g. 2 percent of the credit limit) or outstanding balances are strictly banned. Similarly, cash advance fees must be set as a flat amount rather than a percentage of the withdrawn amount.

Cardholders who miss payment deadlines will be required to donate a pre-committed fixed amount to charity. Banks cannot record these penalty funds as corporate income.

Since the charity amount is fixed upfront, it cannot escalate based on the length of delay. For example, if the agreed charity penalty is Tk 500, a customer delaying payment by two days or two months will donate the exact same sum of Tk 500.

Cardholders will get a five-business-day cooling-off period following approval, during which they can cancel the card without penalty.

Banks must issue a 30-day advance notice before modifying any fees or terms.

Cardholders will not be held liable for fraudulent or unauthorised transactions. Unapproved transactions made after reporting a lost or stolen card must be refunded within seven working days.

Cash withdrawals are capped at a maximum of 50 percent of the total credit limit, and banks are instructed to set credit limits conservatively to prevent over-indebtedness.

Islamic credit cards cannot be used to purchase goods or services prohibited under Shariah law. Banks must implement Merchant Category Codes (MCC) to automatically block such transactions at the Point of Sale (POS). Mandatory blocked categories include alcohol, gambling, tobacco, and cryptocurrency trading.

Additionally, banks are required to conduct annual Shariah audits and submit a consolidated compliance report to Bangladesh Bank within two months of the financial year-end. Any earnings derived from non-compliant transactions must be immediately disbursed to charity. - UNB