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Bangladesh Bank has issued new guidelines for Islamic credit card operations, prohibiting interest-based charges and requiring banks to channel money collected for late payments to charity rather than recognising it as income.
The new guidelines, issued by the central bank’s Islamic Banking Regulation and Policy Department on September 27, provide a comprehensive regulatory framework covering products, contracts, transactions, fees, risk management, internal controls, Shariah compliance and customer protection.
Under the guidelines, Islamic credit cards will primarily operate on the basis of Qard Hasan and Ujrah. Qard Hasan refers to an interest-free loan under which only the principal amount is repaid, while Ujrah refers to a fee or remuneration charged for a service.
Bangladesh Bank said banks will not be allowed to impose interest or any charge calculated on the basis of an interest rate on Islamic credit cards. Fees related to credit facilities must not exceed the bank’s actual direct costs.
The guidelines also prohibit banks from increasing their income based on the amount of a customer’s outstanding balance, the length of payment delay or the fact that payment has been delayed.
During the interest-free credit period, customers cannot be charged any additional fee, profit or compensation from the transaction date until the payment due date.
Fees and charges have been divided into three categories. Category A covers fees not directly linked to Qard Hasan and may contain a profit element subject to specified conditions.
Category B covers credit-related services, including card issuance, renewal and replacement, account maintenance, cash withdrawals, credit-limit increases, conversion of outstanding balances into instalments, currency conversion through the bank and certain card-network and collection-related costs.
Only actual direct costs can be charged for Category B services, with no profit component allowed. Such costs may include genuine payments to third parties and the direct time cost of employees providing the relevant service.
However, the cost of funds, opportunity cost, cost of capital, office rent, utilities, general administrative expenses, management costs, marketing expenses and general corporate headquarters expenses cannot be included in actual direct costs.
If the Category B fees collected from customers exceed the actual direct costs at the end of a year, the excess amount must be returned to customers. If that is not possible, it must be transferred to a Charity Account.
The guidelines also set rules for late payments. If a customer fails to make a payment by the due date, a deterrent charge may be imposed only once during each payment period.
However, the amount cannot be recognised as bank income and must be recorded separately in the bank’s core banking system.
At the time of entering into the agreement, customers must undertake that if they fail to repay an amount on time despite having the financial ability to do so, they will donate a specified amount to an approved charitable organisation.
The amount must not increase or decrease according to the outstanding balance or the length of the delay, and the entire amount must be used for charitable purposes.
Bangladesh Bank has also prohibited banks from setting any Islamic credit card fee or charge by referring to conventional credit card interest rates. Fees cannot be calculated as a percentage of an interest rate.
Credit-related fees must be fixed amounts and cannot vary according to the credit limit, outstanding balance, length of delay or late payment.
Banks also cannot charge customers recurring or variable amounts linked to outstanding balances, credit limits or payment delays, or any cost beyond actual direct costs.
Before entering into a card agreement, banks must provide customers with a Product Disclosure Sheet clearly stating the Shariah structure, all fees and charges, fee calculation methods, minimum payment, interest-free period, late-payment rules and customer obligations.
Customers must also be given a cooling-off period of at least five full working days after receiving the card. If they cancel the card during this period, no fee or penalty can generally be imposed, except for actual direct costs disclosed at the time of entering into the agreement and identified as non-refundable.
Banks must notify active cardholders in writing or electronically at least 30 days before changing any fee or condition. No charge that was not clearly disclosed at the time of issuance can be imposed without the customer’s prior consent.
To prevent fraud, banks will be required to introduce fraud-monitoring and real-time transaction monitoring systems and maintain customer service facilities around the clock.
The bank will be responsible for financial losses resulting from fraud rather than the cardholder. Once a cardholder reports a lost, stolen or unauthorised card, the bank must block it immediately. If an unauthorised transaction occurs after the bank has been notified, the amount must be refunded within seven working days.
Banks must also obtain customer consent through a one-time password before activating a replacement card.
No unsolicited Islamic credit card may be issued without the customer’s explicit consent. Card upgrades and increases in credit limits will also require explicit consent.
The validity of an Islamic credit card cannot exceed five years, and banks cannot unilaterally increase the card type or credit limit. If a change in terms or charges negatively affects customers, they must be allowed to surrender the card without an additional closure fee.
Banks must provide customers with a monthly statement containing detailed transaction information and send the statement at least 14 days before the payment due date. If a customer claims not to have received a statement, the bank must provide a copy free of charge within five working days.
The guidelines also prohibit harassment, threats or interference with the privacy of customers, their family members, references or friends during debt collection. Telephone calls or direct contact for collection purposes must be made only during office hours.
Islamic credit cards cannot be used for activities or transactions prohibited under Bangladeshi law or deemed non-compliant with Shariah principles. If such use is detected, the bank must immediately suspend the card facility and notify Bangladesh Bank.
Banks must use Merchant Category Codes (MCCs) to identify and control prohibited or restricted businesses and transactions. The relevant lists and approval of exceptions will remain under the supervision of the bank’s Shariah Supervisory Committee.
Each bank must conduct a Shariah audit of its Islamic credit card operations at least once a year. The Shariah Supervisory Committee must approve and review the methodology for determining actual direct costs, prohibited MCCs, Ibra policy, the Charity Account and card advertising and promotional materials.
Any income generated from a non-Shariah-compliant source must be excluded from the bank’s distributable profit and transferred to the Charity Account. Banks must also report to Bangladesh Bank the amount deposited into and distributed from the Charity Account.
Banks will be required to preserve records relating to Islamic credit card transactions, approvals, billing, customer consent, product information, Shariah Supervisory Committee approvals, actual direct-cost calculations and Charity Accounts for at least five years.
Bangladesh Bank said the new framework aims to balance innovation with ethics, market demand with responsibility, and financial inclusion with financial discipline. It said the framework is intended to make Islamic retail financing more transparent, credible and development-oriented through Qard Hasan, transparent Ujrah and stronger Shariah governance.
Islamic Credit Cards to Charge No Interest, Late Fees Go to Charity
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