The Literal Meaning Kafala is joining or merging. It simply means to guarantee. The guarantee may relate to a person, finance or action to be performed.In relation to a person, it involves the production of the person for whom the guarantee (bail) has been given. On the other hand in relation to finance, implies to guarantee to meet financial obligations.
Nevertheless relating to an act or performance as to ensure or guarantee the performance of a certain act, the failure of which may render the surety liable. An important point to be stressed is that Kafala, unlike hawala, does not free the person being guaranteed from the obligation. It is only an obligation in addition to the existing obligation.
November 26, 2019 The Editor
Kafala from Quran and Sunnah
In Quran Chapter 12 verse 72, Allah the Almighty says: “they said: We miss the king’s drinking cup, and he who shall bring it shall have a camel-load and I am responsible for it.’ With regards to the verse, Ibn Abbas and Imam Razi interpreted the word za’im (Responsible for it) to mean Kafil (Guarantor).It was reported by Salama bin al Akwa’ in Sahih Al Bukhari that a funeral to صلى الله عليه وسلم was asked to pray over it.
He صلى الله عليه وسلم was brought and He صلى الله عليه وسلم the prophet asked, “does the deceased have any outstanding debts?” they replied, “three dinars.” He صلى الله عليه وسلم said, “pray over your companion.” Abu Qatadah took responsibility for paying the debt upon which the prophet agreed to pray. (Sahih Bukhari). The Prophet صلى الله عليه وسلم usually does not pray on one who dies with debts.
Principles of Kafala
● It is lawful to become a surety for surety.
● There may be more than one surety for a single obligation.
● If persons who are jointly indebted become surety for each other, each of them is liable for the whole debt.
● The discharge of the surety does not necessarily discharge the liability of the principal debtor concerned, the opposite will be acceptable as far as the discharge is.
● If a delay is granted to the principal debtor for the payment of his debts, a delay is also granted to the surety principal debtor. But a delay given to the surety is not a delay given to the debtor.
Components of Kafala
● Contracting parties, namely the guarantor (kafil), the beneficiary (makful lahu), and the guaranteed party (makful‘anhu);
● Offer (ijab) by the guarantor; and
● The subject matter of Kafala Offer (Ijab) of Kafala
The Kafala contract shall be effected by an offer from the guarantor to provide it, the offer may be expressed orally, in writing or by any documentation or record. On the other hand, the subject matter of the it shall not be any obligation arising from Shari’ah non-compliant contracts or activities.
The Subject Matter of Kafala
(a) Kafala al-dayn (guarantee of a debt liability); and
(b)Kafala al-`ayn (guarantee to deliver a physical asset).
Application of Kafala in Islamic Bank:
In financial institutions it refers to a contract where the guarantor conjoins the guaranteed party in assuming the latter’s specified liability. Nevertheless it is used by the Islamic Financial Institutions to provide guarantee services, such as Bank guarantee, standby letter of credit and shipping guarantee.
At the same time it’s used as one of the contracts to supplement various primary Islamic financial products, predominantly for risk mitigation purposes, such as Musharakah, Mudaraba, Murabaha, Istisna ́ , Ijarah and Tawarruq.
It’s contract is implemented through the following services:
● Guarantee contracts
● Guarantee in Documentary credit,
● Credit card based on the contract of Kafala.
The guarantor may impose a fee for providing the Kafala service, the fee as agreed in the contract may be in the form of an agreed fixed amount or a percentage of the guaranteed amount.
Dissolution of Kafala
It’s contract is dissolved when the beneficiary discharges the guarantor from the guaranteed liability, whether or not at the guarantor’s request. The discharge of the guarantor’s liability shall not affect the responsibility of the guaranteed party to fulfill his obligations to the beneficiary. If a fee is paid by the guaranteed party for the Kafala, the contract shall not be dissolved without the consent of the guaranteed party.