Summary of Article on Guarantee Article: ‫مدى جواز أخذ األجر علي الكفالة في الفقه اإلسالمي‬ Charging Fees for

Debt-Guaranties: Extent of Permissibility in Islamic Fiqh (Jurism) Writer: Nazih Kamal Hammad Source: Journal of King Abdul Aziz University (Islamic Economics), Saudi Arabia, Vol. 9, 1997 at pp. 95-121 Abstract: - Majority of jurists’ opinion that taking fee for giving guarantee is not permissible, in my opinion is not accurate. - Nor the opinion of those who support unconditional taking fee for guarantee as it may lead to loan interest. However, the matter need to be elaborated. - There are situations where taking fee is allowed and vice versa. It mainly depends on whether it will lead to creation of a deferred loan or not. This paper seeks to review the opinion of jurists on the prohibition of taking fee for giving guarantee. The study applied jurisprudential methods and examined the general and specific issues in Fiqh as well as look into the contemporary scenario and need. Arguments of the Majority of Jurists and the Writers Comments The jurists have stated that the guarantor should not take fee for the guarantee given, and a guarantee with condition of fee is void (batil). First Argument: Kafalah is originally a form of tabarru’ (gratuity) contracts. The condition to give fee makes it turn to exchange (mu’awadhah) contract. However, the jurists are divided in their interpretation that ‘Kafalah is Tabarru’ into two directions: First direction: It means transfer of ownership of money to others without any return as in hibah, sadaqah, hadiah and other form of gifts like the instance where Saidina Ali and Qatadah guaranteed the debt of a deceased. This is evident in many jurists’ text such as Imam Syafii in Al Umm, Ibn Hazm in Al Mudawwanah and the Hanafi school’s jurists. It is also said to be the basis for jurists to put the condition that a guarantor must have the qualification or capacity of ahlu al-tabarru’, thus stating that guarantee by a minor or a slave is invalid. Writer’s opinion: This direction is not right as the Shari’ah allows the guarantor to donate with his free will to the extent that he can even refuse to claim the amount paid to the creditor from the debtor. However, if the guarantor is forced to perform such act, it is no longer considered as tabarru’ but the nature of contact has changed into contract of exchange. Therefore, Imam Al Rafi’e has condemned the other jurists who claim that kafalah is pure tabarru’ as in kafalah, the guarantor can claim the paid debt from the debtor.

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Apart from that, if Kafalah is to be considered as pure tabarru’, the Shari’ah does not prohibit it from converting into exchange contract via agreement of the parties. An instance of this is the case of hibah al thawab (gift with reward); even if the performer intended to gain profit or more than the amount he has given. Second Direction: It means a commitment by the guarantor to pay the debt. Therefore, he is agreeing to perform the debt and not donating its performance. The tabarru’: an undertaking or a commitment to pay the debt and not the payment of the debt. This direction is clear in the text of Hanafi, Hanbali, Maliki school’s jurist and others. Imam Sarakhsi mentioned: Kafalah is tabarru’ of commitment …..as the kafalah in the beginning is tabarru’ but in the end is an exchange contract. Writer’s opinion: This is the right way from Fiqh perspective to interpret the tabarru’ in Kafalah and this is the direction that should prevail. The guarantor is performing tabarru’ of giving a commitment or undertaking to settle the debt (without settling or performing it in form of gift) to achieve a recognized maslahah and to fulfill a real benefit to both the creditor and the debtor. This is however, in Shari’ah view; do not prevent the changing of the commitment to settle the debt into an exchange contract with the agreement of the parties. It is like the instances where majority of jurists allowed ‘ariah (borrowing) with fee, wakalah (agency) with fee and wadi’ah (safekeeping) with fee. Thus, it is fine if conditioning payment of fee changes the nature of tabarru’ contract to exchange contract, and as such it is also applicable to commitment or undertaking to settle the debt. However, such is only applicable when the guarantee contract does not lead to a long term loan contract. This is because, conditioning fee in such instance may be perceived as a trick to riba nasi’ah. However, some may say that it is inappropriate to associate the commitment in kafalah with fee with the other tabarru’ contracts such as ‘ariah (borrowing) with fee, wakalah (agency) with fee and wadi’ah (safekeeping) with fee as the commitment in kafalah does not have any benefits within that can be utilized. But, in my opinion, there is such benefits utilized in Kafalah as in the other contracts and therefore it can be the subject matter of guarantee or safekeeping and may be give monetary reward in exchange. Examples of it were discussed by jurists in many occasions such as the following: 1. Taking fee is allowed for a commitment to safekeeping in wadi’ah although there may be no efforts involved in the safekeeping of the items. 2. Hanafi and Hanbali school jurists allowed taking profits in return for guarantee as they allowed Sharikah Al Wujuh. Partnership based on reputation of partners as its capital. In this partnership, partners gain and share profit of the business as they had guaranteed the payment of the cost of operation (by way of their reputation). 3. Maliki school’s jurists have allowed taking fee for various permissible commitments, although the subject matter is not money. For instance, a wife may pay fee to her husband for his commitment to not perform polygamy or a

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husband may give a fee to his wife for her commitment not to remarry after his death. Here, the commitment by the parties does not prohibit them from breaching such commitment but they will lose the fee promised. Therefore, I see that it is fine from Shari’ah perspective, to take fee in kafalah in exchange of giving commitment to settle the debt of the debtor. This is supported further by the following: 1. A famous Maliki jurists’ opinion: It is permissible for creditor to give fee to the debtor if he can get someone to guarantee his debt to the creditor. This shows that the commitment by a guarantor has monetary value and therefore, fee may be given in exchange for such commitment. 2. Many of Maliki’s jurists have allowed the guarantor to put a condition to the creditor that if the creditor reduces a small sum of the debtor’s debt, the guarantor will guarantee the balance amount to certain period. Such arrangement shows that the commitment by the guarantor worth some monetary value, therefore, a fee may be given in exchange for it. 3. Many of Hanafi jurists allow the guarantor to gain profit out of the commitment given. For example, the guarantor may profit from the differences of the amount between the sum he paid to the creditor and the sum he claimed from the debtor. This due to the right of the guarantor to claim the amount he originally committed himself to pay, namely the actual debt. However, if the creditor gives him discount for early payment or by way of sulh or negotiation between them, the guarantor can still claim the total of the actual debt from the debtor. Second Argument: Shari’ah has made loan, credential (or reputation/power/position/reputation) and kafalah as good deeds or acts or deeds meant to get closer to Allah, the Almighty. Thus, taking fee for it is greatly prohibited. These acts are like prayer and fasting which is not meant to gain the worldly gain. Writer’s Opinion: Such reference is not right for several reasons listed below: 1. Associating kafalah with prayer and fasting is not correct as they are obligatory actions, mandatory and involves the right of Allah whilst, settlement of other’s debt is not a mandatory obligation of a Muslim. 2. One cannot totally say that a fee cannot be taken from performing the good deeds as the prophet has allowed taking fee for performing incantation using Quranic verses. Apart from that Shafi’e and the contemporary Hanafi jurists allow taking fee for teaching Qur’an and for assuming the position of bilal and imam in the Masjid (mosque). Moreover, Majority of jurists has allowed taking fee for managing jenazah until his burial and Shafi’e scholars even allowed taking fee for performance of a mandatory obligation like saving a drowning person or teaching surah Al Fatihah and etc. Thus, it is concluded that the original rule is that good deeds are meant to be performed to achieve the blessing of Allah alone and no fee should be charged. However, whenever there is no one to perform it for free, fee may be given for its performance. Such is relevant today as it is hard to find someone willing to give guarantee for free. Apart from that, the current living condition and the environment surrounding forces this practice as most of the time, guarantee is obtained from banks and banks will charge certain fee for the guarantee given. Therefore, if we

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were to remain with the guarantee without fee, it will be hard for people to obtain it to fulfill their living needs or lift their living hardships. 3. Simply saying that utilizing one’s credentials/position/qualification/reputation is a good deed is not fine as it is a matter of dispute among jurists. Therefore, Shafi'e, Hanafi and Maliki jurists has allowed taking fee for utilizing one’s credentials. 4. Simply saying that loan is performed solely to seek Allah’s blessing is not correct. Jurist have discussed the matter and explained that loan may be divided as follows: 1. A loan solely for the sake of Allah’s blessing or rewards. 2. A loan for the sake of the debtor. 3. A loan for the benefit of the debtor and the creditor like in the case of Bill of Exchange. 4. A loan for the benefit of the creditor alone, like a loan with interest. Third Argument: Receipt of return is only allowed in exchange of work or money. Guarantee is not considered as work and thus, benefiting a fee from it is prohibited. This was mentioned by several scholars and some claimed that the fee is said to be void (batil) as it constitute bribery. Writer’s Opinion: This argument is not correct for the following 2 reasons: 1. Considering fee in Kafalah as bribery is wrong as bribery is known in Shari’ah as a payment or gift to cancel righteousness or to make wrongfulness prevail. Thus, means to uphold a right or to push injustice aside does not included in it and kafalah is meant to uphold the right of the creditor. Thus, such commitment is valuable and may have monetary value. 2. Saying that payment of fee is solely for performance of work is not totally right as fee may also be paid for commitments that are like work in its hukm such as fee from a husband to wife for a commitment of the wife not to remarry after his death. Fourth Argument: Putting condition of fee for kafalah is like Gharar sale (sale with uncertainity) which is prohibited by Shari’ah. Here, its picture appears in the form that if the debtor settles his debt by himself and the guarantor does not incur any expenses but gains fee from it as initially the agreement of the parties was that the guarantor will guarantee in exchange for the fee but in the end, the debtor incur loss (the money paid as the fee for the guarantor). Writer’s Opinion: Such argument is valid if we consider that the fee is given in exchange for payment of the debt by the guarantor, in case the debtor did not settle it himself. However, it is not correct as the fee is given in exchange a mere commitment to settle the debt of the debtor regardless whether in the end, he has to really settle it or not. So, as long as he continues to fulfill and observe that commitment, he is entitled to receive the fee. Thus, later on, only the following need to be observed: 1. If the guarantor settles the debt of the debtor and he actually owes the debtor same amount of debt. Both parties are cleared of their obligation as here, an automatic set off of debt occurs (muqasah). Thus, the guarantor may get his fee for the commitment given.

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2. If the guarantor settles the debt of the debtor and not having any debt to the debtor and later on, the debtor quickly repays the guarantor of the debt paid, the guarantor is still entitled to the fee for his commitment. 3. If the guarantor settles the debt of the debtor and the debtors has not repay him of the paid debt, there exist a situation of indebtness like a loan between the debtor and the guarantor. Thus, the taking of fee in this situation may amount to a trick or way to gain riba. Fifth Argument: If the guarantor settles the debt of the debtor with the creditor, he will claim the same amount from the debtor with additional sum of money (the fee). Such is not allowed as it is considered as loan with additional or loan that invite interest. Writer’s Opinion: This argument is not right for the following reasons: 1. In Kafalah, the fee is given in exchange a mere commitment to settle the debt of the debtor regardless whether in the end, he has to really settle it or not. 2. If the guarantor settles the debt of the debtor, he will not become the debtor’s creditor. First, the nature of both contracts is different as one is for security and the other is transfer of ownership. Secondly, here, the guarantor’s money is transferred to the creditor and not the debtor. Apart from that, even though in the end of the transaction, the debtor is indebted to the guarantor but here it is not a situation of loan. Although all loan is debt but not all debt is loan. Conclusion: It was found that the arguments of the Majority of jurists to prohibit conditioning fee for kafalah are not totally correct and to derive the rule, the issue must be elaborated and the following is to be observed. Guarantee of monetary obligation involves the following: 1. A commitment by the guarantor to settle the debt or obligation 2. Settlement of the debt by the guarantor to the creditor 3. Claim of repayment by the debtor of the debt paid. The application for Kafalah with fee, the following 5 situations has to be observed: 1. A commitment by the guarantor to settle the debt but in end, the debtor settled it by himself. The guarantor is entitled to the fee in exchange for the commitment given. 2. A commitment by the guarantor to settle the debt, and the guarantor settles the debt of the debtor but he actually owes the debtor same amount of debt. Both parties are cleared of their obligation as here, an automatic set off of debt occurs (muqasah). Thus, the guarantor may get his fee for the commitment given. 3. A commitment by the guarantor to settle the debt of the debtor and he settled that debt but also having debt to the debtor with lesser amount than the debt paid to the creditor. Here, he is also entitled to the fee for the commitment given if the debtor quickly settles the amount paid by the guarantor to his creditor. 4. A commitment by the guarantor to settle the debt and he settles it for the debtor without having debt owed to the debtor, the guarantor is entitled to the fee for

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the commitment given if the debtor quickly settles the amount paid by the guarantor to his creditor. 5. A commitment by the guarantor to settle the debt of the debtor, the guarantor is not entitled to the fee for the commitment given if the debtor does not quickly settles the amount paid by the guarantor to his creditor and it became like a loan or a long term loan. This is because here, the fee may be an interest (riba nasi’ah) for the loan or a means to achieve it. In addition, such is regardless whether the late or delay of payment by the debtor is due to arrangement or agreement of the parties or by coincidence, against the will of the parties or other reasons.

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