Dr. Monzer Kahf, a prominent Muslim economist and counselor, states that: “I can certainly define the credit card in the light of the Qur’an and Sunnah. As the Qur’an prohibited Riba, Sunnah also prohibited many immoral and/or unjust transactions, but my dear brother, there is no prohibition on transactions that involve third party! Did you get that from the Qur’an or Sunnah? Of course there are certain transactions that involve a third party which are forbidden not because they involve three persons, but because the essence of the transaction falls in the boundaries of prohibition. To give an example, a creditor’s giving a debtor a discount is permissible, but discounting a promissory note by the creditor at a third party, a bank, and the bank gets the face value on maturity is forbidden because this is interest.
On the other hand, a transfer of money and/or debts from one person to another at the face value is permissible, so is a guarantee given by a person to a third party for the repayment of a debt or guaranteeing the liability of another. And there are many examples of this kind.
The credit card is a new invention and Muslim scholars define it as either a guarantee given by the issuer to the seller who accepts it or as a transfer of the debt by the debtor to another party, the issuer. Hence, it falls within the permissible transactions. However, there are two problems, one for the issuer and the other for the user; this relates to the fact that the contract here usually contains an interest article if payment is delayed and if cash is withdrawn. Issuing such a card with this interest condition is not permissible in Shari’ah. Islamic banks can’t issue it with such a condition.
Accepting the credit card and using it is not the same, especially that it has become very convenient and it removes hardship. For instance, in most countries you book a room in a hotel or rent a car or make a plain reservation without a credit card. Notice that the interest condition is not essential in the credit card, it has an “if”: i.e. if you don’t pay within a certain time. But believe me it is real grace period, and the condition is invoked; and if you withdraw cash from a machine it is also invoked.
We certainly wish that the interest condition is not inserted in the contract, but unfortunately in most countries there are no Islamic institutions that issue such cards, and even those cards issued in some countries are not really satisfactory because they are limited in scope and usability. In other words you are not signing a loan contract with interest but you are signing a contract that gives you the choice to make the interest applied or not. Consequently, if you know for sure that you can use it without incurring any interest you make the interest clause useless and it is permissible to sign such a contract and use the card.”