No. 12 (12/2)
THE LETTER OF GUARANTEE
Quote - The Council of the Islamic Fiqh Academy, during its second session,
held in Jeddah (Kingdom of Saudi Arabia), from 10 to 16 Rabiul Thani 1406 H
(22-28 December 1985).
Having considered the issue of "The Letter of guarantee";
Having reviewed the research papers and studies already prepared;
After conducting elaborate deliberations and discussions;
HAS REACHED THE FOLLOWING CONCLUSIONS
First:Any letter of guarantee, whether initial or final, is either with or
without cover. Should it be without cover, then the guarantor is regarded
as to have jointly pledged along with the third party, both the performance
and financially. This type of pledge is in fact what is referred to as
"guarantee or collateral" in Islamic Fiqh. If however the letter of
guarantee has a cover, the relationship between the applicant of the
guarantee and its issuer, is that of an agency; and an agency may exist
with or without fee, tied-in with the link of surety in favor of the
beneficiary in whose benefit the guarantee is issued.
Second:The guarantee (Kafala) is a benevolent contract, motivated by grace
and mercy. The jurists have decided against taking fee for issuing
guarantees; the reason being that in the event of guarantor's payment of
the guaranteed sum, it will resemble a loan generated profit to the lender
and that is forbidden in Shari'a.
First:It is not permitted to charge a fee for issuing a letter of guarantee
(in which, customarily, the amount and the period of guarantee are
considered) whether it is with or without cover.
Second:The administrative expenses for issuing a letter of guarantee of
both kind are permissible by Shari'a, provided they do not exceed actual
expenses for services of the same kind. In the event a partial or total
cover is presented, it is permissible to take into account, when estimate
of expenses is determined, the possible effort which may be required to
provide the cover.
Verily, Allah is All-Knowing.
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