Bangladesh Bank (BB) has limited Islamic credit card lending-linked fees to actual costs under a new regulatory framework, barring banks from using such charges to generate profit from credit extension.
The central bank issued the Guidelines on Islamic Credit Card Operations of Banks through IBRPD Circular No. 01 on 27 September, requiring banks offering Islamic credit card services to ensure Shariah compliance, customer protection, transparency and sound risk management. The guidelines, issued under Section 45 of the Bank Company Act, 1991 (as amended), came into force immediately.
Under the framework, banks must ensure Islamic credit card products, contracts, transactions, fees, charges and operational processes comply with Islamic Shariah and applicable BB rules. The guidelines also require Shariah governance, risk management, internal controls, accounting disclosures and customer protection arrangements.
Scheduled banks authorised to provide Islamic banking services can issue taka-denominated Islamic credit cards, while banks issuing foreign or dual-currency cards must also hold Authorized Dealer licences.
Each issuing bank must have a Shariah Supervisory Committee (SSC) to oversee Islamic credit card operations, including products, policies and fee structures. Banks must also formulate institutional policies on Islamic credit card operations with SSC approval.
The framework allows Shariah-compliant structures, including Qard Hasan with Ujrah, where the financing component is treated as an interest-free loan while banks may charge fees for genuine services.
The guidelines require lending-linked service fees to follow the Actual Direct Cost (ADC) principle. Such fees cannot generate profit from credit extension and must be based on costs directly attributable to the relevant service.
Charges linked to outstanding balances, credit limits or payment delay periods are prohibited. The guidelines allow profit from certain non-lending-linked services.
Banks must establish controls to prevent Islamic credit cards from being used for prohibited activities through Merchant Category Code (MCC)-based restrictions. The SSC will determine the treatment of residual risks involving mixed-category merchants.
The framework requires fraud monitoring systems, real-time transaction alerts and two-factor authentication for specified transactions. Cardholders will also have a five-business-day cooling-off period to cancel contracts without penalty, ending upon activation or first use of the card.
In case of late payment, penalties cannot be treated as bank income. Cardholders must undertake to donate a specified amount to charity, while penalty proceeds must be kept in a segregated Charity Account. Income from Shariah non-compliant sources must also be transferred to the Charity Account for purification.
Banks must conduct dedicated annual Shariah audits of Islamic credit card operations and submit SSC-certified consolidated returns to BB’s Islamic Banking Regulation and Policy Department after the end of the financial year.
Banks must retain transaction records, billing statements, SSC approvals and actual direct cost calculations for at least five years from the transaction date or account closure.
BB said the framework would facilitate Shariah-compliant card-based payment services while ensuring sound, transparent and efficient operations and strengthening customer protection.
