Islamic credit cards were introduced because ribaa (the Arabic word for interest) is forbidden in Islam. These cards work a bit differently from conventional credit cards. One format offered by several banks is that of a “profit rate”. Here, instead of the customer paying interest charges, he or she is effectively paying an additional amount or “profit” to the bank for every purchase made on the credit card. It is very similar to the concept on an interest rate but the ideology is that the user is incurring a “profit” fee for services enjoyed by using the credit card.
Another format of an Islamic credit card offered by some banks in the UAE is a monthly fee based credit card. Here, instead of paying interest charges for each purchase the user only pays a fixed amount or a fixed fee each month for using the credit card. This fee is payable irrespective of the amount used on the credit card.
Of the two general types of Islamic credit cards, the one based on a fixed monthly fee is obviously the most different as compared to a regular non-Islamic credit card. The other type which is based on a profit rate is more or less similar to a non-Islamic credit card.