Islamic cards are appearing with increasing
regularity. In this guest article, Paul
, business leader of prepaid Europe at
MasterCard, examines how card payment providers are tapping into
the growing Islamic segment, and asks if there is a role for
prepaid Islamic solutions as well.

For the great majority of consumers, card-based payments have
become a natural part of the daily routine. Consumers will happily
employ one of the often many pieces of plastic in their wallets to
make that everyday purchase without any thought of the processes
behind how this type of payment actually works. It simply does; and
that is all they need to know. But for a certain segment of
society, namely the Muslim community, this kind of financial
freedom is not so straightforward.

In the UK alone, there has been an established Muslim community for
over 300 years, with some 2 million Muslims currently residing
here. For these devout followers of the faith, Islamic law, or
Shariah, governs all aspects of both their economic and social
life, and dictates a certain ethical code by which to conduct

According to the Muslim faith, Islam places no intrinsic value on
money, thus prohibiting the earning or paying of interest. This in
turn rules out use of the majority of traditional financial
products and services to which Western consumers have become so
accustomed. Credit cards, overdrafts, savings, as well as
traditional mortgages and investments are all off the table.

As such, there is an ever-increasing demand for financial products
which do abide by the rules set out by Islamic law, which are
Shariah-compliant. In this, my first of a series of articles for
Cards International, I will be looking at the innovative new
Shariah-compliant products that are emerging across the globe,
focusing on the rise of card-based solutions that are catering for
this historically financially excluded Muslim community, with a
particular focus on prepaid.

The findings of the General Council for Islamic Banks &
Financial Institutions (CIBAFI), an international association that
looks at Islamic banking in Europe and the Middle East, provide
valuable insights.

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In 2005, CIBAFI estimated the size of this market exceeded $500
billion, with growth potential of 15 percent per annum. Meanwhile,
according to Brian Riley, a research director at financial services
research firm TowerGroup, Muslims already constitute nearly 24
percent of the world’s population, with total assets in
Shariah-compliant banks expected to hit $1 trillion by 2011. I
think you will agree that this is no insignificant statistic.

So how can this huge market potential translate into the
card-payment sector? As both pure Islamic banks and more
conventional financial services groups look to enter the arena, the
ability to acquire market share is hugely dependent on their
ability to readily offer innovative Shariah-compliant products
across multiple territories.

In recent years, a growing number of financial institutions have
launched lines of Shariah-compliant mortgages, profit sharing
deposit accounts and shares in Islamic mutual funds.

But to truly remain competitive in this sector, these financial
groups have realised the importance of offering customers card
products that are Shariah-compliant and free of interest-earning
features. No longer can they sit idle and ignore the persistent
demand from customers to provide financial options which not only
provide payment convenience but fundamentally the ability to pay
for purchases in accordance with the Shariah.

A brief guide to Shariah finance

In broad terms, Islamic or Shariah finance is governed by
principles that comply with the laws of Islam. This encourages the
sharing of personal wealth for the well being of the community as a
whole and only making money through trade and investment in
companies that comply with the Shariah principles of the

More specifically, as Islamic finance views money as having no
intrinsic value, it is deemed unacceptable for money to increase in
value by virtue of it being lent to another person. As such,
Shariah principles dictate that Muslims are forbidden to
participate in any financial practices or do business with any
money-lending entity that charges interest, known as riba; invokes
gharar, or uncertainty (most commonly in the form of variable
interest rates); or uses funds for maysir, or gambling.

Therefore, organisations involved with products or activities such
as alcohol, pork, tobacco, gambling and pornography are strictly
off limits, as is taking part in any contract which is subject to
excessive risk, or buying or selling products that are not in the
direct possession of their owner.

With many of the more traditional avenues cut off, the principal
means for financial institutions to make money is through a
fee-based process, where variable fees are charged to guarantee
purchase payments to merchants or as a fee for the provision of a
credit facility.

Although it was widely practiced in the Muslim world throughout the
Middle Ages, it is only in the last 30 years or so that Shariah
finance has seen significant growth in the mass market. The first
modern commercial bank, Dubai Islamic, opened its doors in 1975 and
in the last few years the industry has started to see strong
development in new services, with many large western banks now
offering Shariah-compliant products.

Furthermore, a number of institutions such as the Islamic Financial
Services Board and the International Islamic Rating Agency have
been founded to set international standards for Shariah-compliant
products and services.

In the early years, the products offered were pretty basic and
strongly founded upon conventional banking products. Services such
as current accounts were available, which operated in the same way
as conventional ones, only without an overdraft facility and
without interest. However, over the past decade the range of
opportunities for those wanting to spend, bank and invest in a
Shariah-compliant way has increased rapidly. The advent of the
Shariah-compliant card is the most recent of these

Features of a Shariah-compliant card

• No interest is charged on outstanding balances

• Credit is limited to and guaranteed by funds coming from the
customer’s account that is based on a Wadiah contract or other
deposits of the customer’s in the bank

• Total profit chargeable over the card’s duration is fixed at the

• Sharing of card operations cost with cardholders

• Administration fees calculation can include the ratio between the
previous month’s operating costs and outstanding balance

Open for interpretation

But if you are looking for an easy list of what Shariah does and
does not mean for your finance, there is no straightforward answer.
For most Muslims, the holy books (the Koran and Sunna) are fully
open to interpretation.

Although UK-domiciled financial groups are regulated in their
dealings by the Financial Services Authority, they are
fundamentally guided in their Shariah-compliance by various
specialist Shariah scholars. As such, there is no absolute
definition of what is and what is not considered Shariah-compliant
personal finance.

Shariah-compliant debit cards

Traditionally the Muslim community has relied on cash and debit
cards to make

everyday purchases, but this system has been plagued with concerns
over whether it is truly compliant with Islamic law, not to mention
the inconvenience created for Muslim consumers.

While a debit card may have an element of Shariah-compliancy
already built-in, if no interest is paid on balances or charged on
overdrafts, Muslim cardholders may be unsure of how the money they
hold within their accounts is being used by the bank. Just because
they themselves abide by Islamic law, that doesn’t mean that their
banks necessarily are fully compliant as well, refraining from
earning interest on customers’ funds or investing in unethical

As a result, many Muslim consumers often revert back to cash as
their primary payment vehicle. To help solve this problem, in
August MasterCard and EONCAP Islamic Bank (a member of Malaysia’s
EON Bank Group) jointly launched what they are billing as the
world’s first Islamic debit MasterCard: the EONCAP Islamic debit

This fully Shariah-compliant debit card has total ATM
functionality, ensures the ethical investment of any funds on the
account and can add a long-awaited convenience factor to everyday
payments as it can incorporate MasterCard PayPass contactless
functionality, allowing consumers to ‘Tap&Go’ for low-value

Fozia Amanulla, chief executive officer of EONCAP Islamic Bank,
explains the range of benefits offered.

He says: “The card is designed to appeal to both Muslim and
non-Muslim individuals who prefer better financial control as the
card ensures purchases are automatically deducted from the
cardholder’s account and approved only if enough funds exist within
the account. It helps track spending, comes with worldwide
acceptance at more than 27.3 million locations and can be used at
an ATM for e-banking.”

The fact that this card is Shariah-compliant has not led to
sacrifices on the convenience factor that we associate with debit
cards. So now that we can see the potential for Shariah law in card
products, let us move on to perhaps the most controversial of them
all: the Shariah-complaint credit card.

Shariah-compliant credit cards

For conventional banks, credit cards have become a major source of
income. Sizeable revenues can be generated through transaction and
card membership fees, penalties for overdue payment and most
significantly from compound interest earned when cardholders
maintain an outstanding balance.

However, as I have already explained, the principles of Shariah law
denounce the practice of usury as represented by interest, which at
first glance would imply that this type of payment vehicle would be
‘off the cards’, so to speak.

But interestingly, the Shariah does not actually prohibit the
collection of fees or earning profit from sales of transactions. As
such, if the collection of interest can somehow be removed from
card transactions, then Islamic credit cards are permissible and
can in fact be profitable. This in turn has led to an influx of
credit card companies actively pursuing this group of people who
traditionally have shunned this form of payment for religious

Generally, there are three groups of credit card arrangements that
can be deemed as Shariah-compliant. The first option is for a bank
to provide a line of credit to the cardholder and charge a monthly
or yearly usage fee tied to the outstanding balance of the line of

Alternatively, a customer can be allowed to buy an item with their
Shariah-compliant credit card, but in the instant that the card
goes through, the bank purchases the item before selling it to the
cardholder at a higher price. The final option is for there to be a
lease-purchase agreement where the bank holds title to the
purchased item until the cardholder makes the final payment.

With these Shariah-compliant cards, terms and fees can vary
depending upon the financial institution as well as the region and
local competition. Typically, with line-of-credit cards, a customer
can expect to pay usage fees of between 5 to 10 percent of the
outstanding balance. Alternatively, with the other credit options,
a cardholder will usually be required to pay a third of the
outstanding balance and have a deposit account with the bank.

Despite their complexity, however, many experts maintain that
Shariah-compliant credit cards have far more in common with their
non-Islamic counterparts than not. Much the same as traditional
credit cards, these cards follow the same models used by brands
such as MasterCard, are easy to use, require no assets of ownership
and most importantly, credit limits are set on the basis of
creditworthiness of the person.

The launching of Shariah-compliant credit cards has thus opened a
new customer segment to many banks, particularly those based in the
Middle East. First Gulf Bank, for example, which has niche credit
cards aimed at ladies and high net worth individuals, also offers
the ‘Makkah Card’, the region’s first unsecured Shariah-compliant
credit card, which earns the holder ‘Steps’ toward a trip to
Makkah. Meanwhile in the United Arab Emirates (UAE), while cash is
still king, credit cards are slowly working their way up the
hierarchy as the preferred choice of payment.

According to independent research commissioned by MasterCard
Worldwide, the 4.1 million residents of the UAE now hold 2.4
million credit cards and 2.2 million debit cards, translating to a
massive 59 percent penetration of the market.

Looking to the UK

Moving to the UK now, we can see how the recent launch of a brand
new Shariah-compliant card product is targeting yet another part of
this previously financially excluded community.

As we sink deeper into the grips of the credit crunch, UK credit
companies have continued tightening their lending criteria, raising
interest rates and cutting individual lines of credit to help limit

In line with this, a recent report released by Standard &
Poor’s, the credit agency, revealed that UK consumers, both Muslim
and non-Islamic alike, are walking away from their credit card
debts in rising numbers.

Gone are the days of extravagant spending on credit cards. Now we
welcome in the more money-conscious consumer, looking to overhaul
their excessive spending patterns and learn to live on a budget.
Helping to ring in these changes is the new Cordoba Gold cashplus
prepaid MasterCard, the UK’s first fully Shariah-compliant prepaid

Prepaid cards are already recognised for their value as a budgeting
tool. Cardholders simply load the amount of money onto their
prepaid card that they plan on spending over a given period and
keep a much closer eye on their spending as a result. Meanwhile,
without any overdraft facility on the card, there is never any risk
of getting into debt. With these characteristics already built-in
to the card, prepaid lends itself perfectly to

However, as well as being Shariah-compliant, it is the vast range
of additional benefits that this card provides that really sets it
apart from the competition.


Introducing Cordoba Gold – the UK’s first Shariah-compliant
prepaid card

On 11 August, Cordoba Financial Group and Advanced Payment
Solutions (APS) launched the UK’s first MasterCard branded
Shariah-compliant prepaid card. This new card combines the security
of a MasterCard with the ethical financial principles of Shariah

What makes it Shariah-compliant?

Under Islamic law, interest or usury is forbidden. In common with
other prepaid cards, there is no balance on the card upon which to
accrue interest, with no overdraft function in place. However, what
sets Cordoba Gold apart is that Cordoba Financial Group earns no
interest on the deposits held on Cordoba Gold prepaid cards.

How it works

The card costs £9.95 to purchase, with a second card supplied free
of charge. Cardholders can pay a monthly fee of £4.95 or
alternatively £1 per transaction, depending on how the cardholder
plans on using the card.

As the Cordoba Gold is a MasterCard card, it is accepted at 27.3
million locations globally, including 1.9 million ATMs and other
locations where cash can be obtained. Top-ups are also free at
14,500 locations in the UK, including any UK Post Office

Easy way to share money

The competitive transfer rates of Cordoba Gold mean that
cardholders can share the benefits with up to four additional
cardholders on their account. This allows cardholders to give a
personalised card to friends or family in the UK or abroad,
enabling them to access money whenever they need it, whether in the
UK, India, Bangladesh, Pakistan, the Middle East or anywhere else
in the world.

The Cordoba Gold card can save customers up to 90 percent when
passing money, for example to Saudi Arabia, with a single charge of
£1.38 per transaction compared with £12 with Western Union.

The perfect travel companion

More convenient than travellers cheques, and safer than carrying
cash, the Cordoba Gold card is well suited for those travelling

With competitive exchange rates, and full Shariah-compliancy, the
card is ideal for Muslims taking money on the religious pilgrimages
of Haji or Umrah. In addition, the Cordoba Gold card is chip and
PIN protected for added security, with a dedicated fraud team
offering added purchase protection for all purchases whether they
are point of sale or online.

Improve your credit rating

Creditbuilder is a free service available with the Cordoba Gold
card, and with it, cardholders can improve their credit rating in a
Shariah way; even for those with no credit history or a bank

Targeting frequent travellers and those who often transfer money
overseas, the Cordoba Gold prepaid card offers its customers highly
competitive foreign exchange rates as well as a money transfer
feature, which comes in at nearly a tenth the price of Western

In addition, the card offers a creditbuilder facility to help boost
cardholders’ credit ratings by adding positive information to their
credit file, using a gradually repaid loan rather than a monthly

But although this prepaid card is Shariah-compliant, it is not
targeted solely towards the Muslim community. As with all the
Shariah card products that I have discussed in this article, there
are elements of all of them that have serious mass-market

Not just for Muslims

You don’t necessarily have to be a Muslim to get a
Shariah-compliant card.

For those consumers who are attracted by the idea of more ethical
forms of financial services, Shariah cards may be right up their
street. Since Islamic banks are forbidden from investing in
companies that profit from alcohol, tobacco, pornography, gambling
or pork, many non-Muslims who, on personal grounds, object to these
practices, may also be attracted to these programmes.

It is perhaps unsurprising to hear that the majority of banks that
issue these Shariah-compliant products are based in the Middle East
and Southeast Asia, but since the majority of the cards are
processed through leading brands such as MasterCard, retailers take
them wherever payment cards are accepted.

Although we often fear the unfamiliar, Shariah products should not
be included in this category. The impressive growth of this sector
is simply a direct response to a real demand from a largely
financially excluded segment of society. It now seems only a matter
of time before these previously niche card products really make
their mark on the mass-market.