Resolution of the Council of the Islamic Fiqh Academy on Letters of Guarantee — Resolution No. 12

In the Name of Allah, the Most Compassionate, the Most Merciful.
All praise is due to Allah, Lord of the Worlds, and may blessings and peace be upon our master Muhammad, the seal of the prophets, and upon his family and companions.

To proceed:
The Council of the Islamic Fiqh Academy, operating under the Organisation of the Islamic Conference, convened its second session in Jeddah from 10–16 Rabīʿ al-Thānī 1406 AH (22–27 December 1985 CE). Having examined the issue of letters of guarantee, and after reviewing the papers and studies prepared on the subject, followed by extensive deliberation and discussion, it concluded the following:

1 – A letter of guarantee, whether preliminary or final, is either issued with cover or without.
If it is issued without cover, it constitutes the addition of the guarantor’s liability to that of another for a present or future obligation; this is exactly what Islamic jurisprudence calls ḍamān or kafālah (suretyship).
If the letter of guarantee is issued with cover, the relationship between the applicant and the issuer is one of wakālah (agency). Agency may be for a fee or free of charge, while the suretyship relationship in favour of the beneficiary (the party guaranteed) remains intact.

2 – Kafālah is a gratuitous contract intended as an act of assistance and benevolence. The jurists have ruled that it is impermissible to charge a fee for suretyship, because when the guarantor pays the guaranteed amount it resembles a loan that yields a benefit to the lender, and this is prohibited by the Sharia.