BB issues guidelines for Islamic credit card operations

Bangladesh Bank (BB) has introduced a comprehensive regulatory framework for Islamic credit card operations, aiming to ensure Shariah compliance, customer protection, transparency and sound risk management amid the expansion of digital payment services.

The central bank issued the Guidelines on Islamic Credit Card Operations of Banks through IBRPD Circular No. 01 on September 27, saying the framework would apply to banks offering Islamic credit card services.

The guidelines were issued under Section 45 of the Bank Company Act, 1991 (as amended), and came into force immediately.

Under the guidelines, banks must ensure that Islamic credit card products, contracts, transactions, fees, charges and operational processes comply with Islamic Shariah as well as applicable Bangladesh Bank rules.

The guidelines also require appropriate Shariah governance, risk management, internal control, accounting disclosure and customer protection arrangements for Islamic credit card operations.

According to the framework, scheduled banks authorized to provide Islamic banking services can issue taka-denominated Islamic credit cards while banks issuing foreign or dual-currency cards must also be licensed as Authorized Dealers.

Each issuing bank must have a Shariah Supervisory Committee (SSC) to oversee its Islamic credit card operations, including products, policies and fee structures. Banks are also required to formulate a comprehensive institutional policy on Islamic credit card operations with SSC approval.

The framework provides for Shariah-compliant structures, including Qard Hasan with Ujrah, under which the financing component is treated as an interest-free loan while the bank may charge fees for genuine services.

It places particular emphasis on the Actual Direct Cost (ADC) principle for lending-linked services. Such fees cannot be used to generate profit from the extension of credit and must be based on costs directly attributable to the relevant service.

The guidelines classify charges into different categories, allowing profit from certain non-lending-linked services while restricting lending-linked fees to actual direct costs. Charges linked to the outstanding balance, credit limit or duration of payment delays are prohibited.

Banks are also required to establish system-level controls to prevent Islamic credit cards from being used for prohibited activities. Merchant Category Code (MCC)-based restrictions will be used for this purpose, with the SSC responsible for determining the treatment of residual risks involving mixed-category merchants.

The guidelines require 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 from receipt of the card to cancel the contract without penalty, although the period ends upon activation or first use of the card.

In the event of late payment, penalties cannot be treated as bank income. Under the framework, cardholders will provide an undertaking to donate a specified amount to charity in case of late payment, while penalty proceeds must be maintained in a segregated Charity Account.

The guidelines also require banks to identify and transfer income arising from Shariah non-compliant sources to the Charity Account for purification.

For stronger oversight, banks must conduct a dedicated Shariah audit of Islamic credit card operations at least annually.

A consolidated Islamic credit card return, certified by the SSC, must also be submitted to Bangladesh Bank's Islamic Banking Regulation and Policy Department within the stipulated period after the end of the financial year.

Banks are required to maintain records relating to transactions, billing statements, SSC approvals and calculations of actual direct costs for at least five years from the date of the transaction or account closure.

Bangladesh Bank said the new framework is intended to facilitate Shariah-compliant card-based payment services while ensuring sound, transparent and efficient operations and strengthening customer protection.