FAKULTI PENGURUSAN DAN PERNIAGAAN

DIPLOMA PENGAJIAN PERBANKAN

ASSIGNMENT CTU 351

(FUNDAMENTAL OF ISLAMIC BANKING)
(AL-KAFALAH)

GROUP : BA1194E
GROUP MEMBERS : NUR IZATTI BINTI NADZIM AHMAD (2018448202)
: NUR FASIHAH BINTI MAT ROPI (2018285152)

: NUR LIYANA SYAHIRAH BINTI SAA’RI (2018285658)

: NUR HADIRAH BINTI RAZALI (2018219972)

LECTURER : NURUL HIDAYAH BINTI CHE HASSAN

DATE OF SUBMISSION : 14 JUNE 2019
 ACKNOWLEDGEMENT

Bismillahirahmanirrahim, first of all we would like to express our special thanks to our lecturer,
Ustazah Nurul Hidayah Binti Che Hassan, who gives us this opportunity to complete this
assignment. Although this semester was done through Online Distance Learning (ODL), we
still able to complete this assignment within the time given with the help of Ustazah and other
classmates.

Secondly, we would also like to thank each one of our group members who struggles and spend
almost every day to complete this assignment together.

We felt grateful as this assignment has successfully been completed and follow all the criteria
needed with the full guidance by our lecturer. This assignment clearly helps us to develop our
knowledge on Al – Kafalah specifically, therefore again we would like to express special
thanks to Ustazah for not giving up to share her knowledge to us.
TABLE OF CONTENTS

NO. CONTENTS PAGE

1. DEFINITION OF AL-KAFALAH 1

2. FLOWS OF AL-KAFALAH 2

3. PILLARS OF AL-KAFALAH 3

4. TYPES OF AL-KAFALAH 4-5

5. ADVANTAGES OF AL-KAFALAH 6

6. EFFECTS OF AL-KAFALAH 7

7. CONDITION OF AL-KAFALAH 8

8. APPLICATION OF AL-KAFALAH IN MALAYSIA 9

9. THE ISSUE OF AL-KAFALAH IN MALAYSIA 10-11

10. CONCLUSION 12

11. REFERENCES 13
 DEFINITION OF AL-KAFALAH

Kafalah is derived from the word kafala which means junction, joining, combination,
responsibility or suretyship. Kafalah literally means guarantee, bail, surety, responsibility and
suretyship. In other words, kafalah refers to an act of someone joining one obligation to another
obligation with regard to the settlement of claim. Technically, kafalah means an assurance or
guarantee that given by guarantor to a creditor on behalf of the principal debtor to secure the
debtor (guaranteed) be able to fulfilled their responsibilities such as pay his debt. In kafalah, a
person adding himself to another person, and making himself liable to meet any claim that may
arise from this obligation together with the persons. However, the contract of kafalah consists
into two types which is Al-Kafalah Bi Al-Nafs that refers to guarantee of persons and Al-
Kafalah Bi Al-Mal that focus on guarantee of property. A creditor is prohibited to charge the
debtor an additional amount, as this is usury. Similarly, a guarantor who does not provide any
debt is also prohibited to charge the debtor. In addition, there are a few Islamic Bank that offers
Al-Kafalah to their customer. For instance, Bank Islam, Maybank Islamic, RHB Islamic Bank
and Affin Islamic Bank.

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 FLOWS OF AL-KAFALAH

Kafil (Gurantor)

Makful Bih (Debtor/Things)

Makful Anh Makful - Lah

(Principle Debtor) (Creditor)

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 PILLARS OF AL-KAFALAH

According to the Hanafi school of Fiqh the contract of kafalah has two pillars. They are offer
from the guarantor and the acceptance from the creditor. On the other hand, according to the
majority of the Fiqh schools, they have four pillars which is:

1. Guarantor (Al-Kafil)
 A person who gives the guarantee is also called surety. The guarantor who
agrees to take a responsibilities or be responsible for another person’s liability
especially paying for his debt.
2. Creditor (Al-Makful Lah)
 A creditor to whom the guarantee is given. The beneficiary is a creditor or a
party who has the right to claim the liability from the guaranteed party or the
guarantor.
3. Principal debtor (Al-Makful Anh)
 A person in respect of whose default the guarantee is given.
4. Guaranteed (Al-Makful Bih)
 The claim itself made by the creditor whether it relates to the person (debtor)
or the property (things).
5. Sighah (Ijab and Qabul)
 A kafalah contract shall be entered by an offer and acceptance between the
guarantor and the beneficiary (creditor).

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 TYPES OF AL – KAFALAH

Al-Kafalah terms can be applied by anyone who agreed with the concept. Al-Kafalah
can be classified into 5 different types which are Al-Kafalah Bi Al-Nafs, Al-Kafalah Bil-Mal,
Al-Kafalah Bit Taslim, Al-Kafalah Al-Munjazah and Al-Kafalah Al-Muallaqah. All 5 types of
Al-Kafalah can be defined as below:

i. Al - Kafalah Bi Al - Nafs

Al - Kafalah Bi Al – Nafs is a contract with aqad between debtor and guarantor. To illustrate,
if there is a situation where a debtor borrowed amount of money from Bank Islam and he are
not able to settle his debt. Therefore, the borrower can ask for a help from the guarantor in
order to guarantee him to the Bank Islam and it can be anyone that he can trust to. The guarantor
is only responsible to ensure that the principle debtor is able to presence in a lawsuit and
guarantor are not legally liable to settle all the debt makes by the principle debtor.

ii. Al – Kafalah Bil-Mal

For this term, it is a guarantee for settlement of debt made by the guarantor. For example, if a
principle debtor dies within the period of agreement are be made between the creditor, then the
guarantor is responsible to settle all the outstanding debts due to the guarantee have been made
between the two parties. Plus, the creditor has the rights to decide with whom the repayments
should be made either the guarantor or the principle debtor itself.

iii. Al - Kafalah Bit Taslim

Al-Kafalah Bit Taslim are used for guarantee in leasing contract between principal debtor and
the creditor. The guarantee can be applied by the creditor such as the bank with the help of the
lessor to ensure that the principle debtor is able to settle all his debt. The guarantee can be
described in many ways such as deposit from the principal. This is because, the deposits can
be used as a fee for the bank and guarantee of the principle debtors to settle his payment within
the time period agreed.

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For example, a bank will demand for a deposit if the principal debtor agreed for the leasing
contract such as landlord or even a car.

iv. Al-Kafalah Al-Munjazah

Al-Kafalah Al-Munjazah can be defined as an absolute guarantee without any specific

limitation period of time to fulfill. With the help of the creditor, the principal debtor can be
guaranteed to settle his debt towards the third party. For example, the bank will help their
principle debtor by guaranteed that he or she can settle all the payment that they owe to the
third party. However, as mentioned before, Al-Kafalah Al-Munjazah have no any specific due
date for the bank to guaranteed the principle debtor.

v. Al-Kafalah Al-Muallaqah

For Al-Kafalah Al-Muallaqah terms, it is the opposite of the Al-Kafalah Al-Munjazzah basis
where there is specific period of time for the guaranteed of the principle debtor. The creditor
will inform the principal debtor regarding for how long the service for the guarantee will be
held. For example, the bank agreed to guarantee the principle debtor for 5 months for his work
project and tender purpose.

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 THE ADVANTAGES OF AL-KAFALAH

1. Creditor

 Could evidence the loan repayment and ensure that the creditor can reclaim his money
back by claim the payment from the guarantor in case the debtor default of his payment.
 Allow the creditor to call upon either the debtor or the guarantor to carry out the
commitment and order from one will not affect his right to go after the other if the
obligation is not fulfilled.

2. Debtor

 Reduce and outspread his risk because the guarantor is on his side, unite his debts to
the creditor.
 Can persuade the creditor to lend him the money because he has somebody on his side
as a guarantor for the payment. Nobody will easily lend him any amount of money if
he does not have anybody that can take the responsibility on behalf of him in case of
default.

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 EFFECTS OF AL – KAFALAH

Once Al – Kafalah terms has been agreed to be used, clearly it will affect to guarantor
(Al-Kafil), creditor (Al-Makful Lah) and principal debtor (Al-Makful Anh). When a valid
Kafalah terms is concluded and been finalized, it will give a legal right to the creditor to claim
the debt from the guarantor as what concerns during the agreement. However, still the principle
debtor is not free yet from the debt. This is because the guarantor agrees to responsible on
behalf the principal debtor for paying his debt.

Moreover, a creditor actually can choose whether to ask for the settlement of debt from
the guarantor or from the principal debt. Even though the guarantor has agreed to be responsible
for the principal debtor’s debt, but the bank will decide from whom the payment should be
made. To illustrate, if an individual has signed an Al-Kafalah concept under Bank Islam with
the help of his friend as a guarantor, Bank Islam have the rights to choose from whom the
payment should be collect to settle all the outstanding amount of debt.

Al-Kafalah is a non-payment basis terms where the guarantor helps the principal debtor
without any payment without any legal charged. Even so, the guarantor is demand any possible
reward as a return for his service to help the principal debtor. Yet, the demand only can be
made to the principal debtor and not from the creditor. This is because, the service provided
from the guarantor are solely to help the principal debtor. Therefore, the guarantor can demand
service fee from the principle debtor throughout of his service.

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 CONDITION OF AL-KAFALAH

The validation contract of Al-Kafalah must to be fulfill the requirement needed unless the
contract is not accepted.

1. Guarantor
 The guarantor must have complete legal capacity and capability.
 There are does not have any limit to the number of people that can be a guarantor
for the debtor.
 Willing to be a guarantor, and not be forced by other people.
 The guarantor is not allowed to withdraw after the loan agreement has been sealed
or after the money has be given to the debtor.
2. Creditor
 The creditor must be known by the guarantor and all parties.
 He has the right or entitled to claim the debt from the debtor or the guarantor.
 Have a right to discharges the guarantor from his obligation. However, the debtor
(guaranteed party) still need to settle his debt.
 The creditor is also authorized to relief the debtor from his obligation and in this
event, the guarantor is no longer required to settle the debt for the debtor.
3. Guaranteed Object or Assets
 The object must be an established liability and object of financial guaranteed must
be possible to collect from the guarantor.

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 APPLICATION OF AL-KAFALAH IN MALAYSIA

In International trade and finance, kafalah plays an important role in facilitating trade
across border by which the bank is asked as a guarantor of payment in the international trade
transaction. Islamic banks are able to offer bank guarantee, standby letter of credit and shipping
guarantee using the concept of kafalah. Such application is used in the form of letters of
guarantees. In Malaysia, the guarantee facility is not only issued by Islamic banks but also by
financial institutions such as Cagamas SRP Berhad and Credit Guarantee Corporation Berhad.

Letter of Guarantee (LG)

 Principle of Kafalah has been used in Guarantee facilities as a basis in structuring the
Letter of Guarantee.
 Guarantee facilities refers to contract or assurances made by Islamic bank to third
parties.
 Customer will fulfil his or her obligations towards the respected third party.
 In this assurance, bank agrees to assume the liability of its customer in the case of
default or breaching of contract as agreed between customer and the third party.
 The issuance of Letter of Guarantee (LG) usually subject to various terms and
conditions. A common practice is that the bank would require customer to cover fully
or at least partially value of the Letter of Guarantee.

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 THE ISSUE OF AL-KAFALAH IN MALAYSIA

In Malaysia, the Al-Kafalah contract which follow the Shariah are not fully been
exposed by all the customers. This is because, some of the customers may have zero knowledge
about the existence of this Islamic contract and prefer to signed the contract offered by
conventional bank. However, Malaysia’s Islamic Bank still offered the Islamic contract to the
related applicants such as RHB Islamic Bank, Maybank Islamic and Bank Islam.

The most popular Al-Kafalah term been used in Malaysia is Shipping Guarantee-i (SG-
i). This contractual agreement followed the Shariah Principles where the bank act as a guarantor
to the customer in regards of releasing the goods to the third party with the absence of the
original Bill of Lading. The SG-i can be define as a bearing of a losses document issued by a
particular Islamic Bank such as Maybank Islamic to any shipping companies in Malaysia. The
common issue that always occur on SG-i terms is where the releasing goods arrived earlier than
the legal property documents. In this case, Maybank Islamic play an important role to ensure
that the goods are safely delivered to the third parties without been charged for any late
shipment.

To be noted, the goods shipment that guaranteed by the bank are only applicable for
Halal goods as it refers to the Shariah compliance. The bank has the rights to not proceed the
contractual agreement if any goods that not parallel to the Shariah Principles involved such as
alcoholic drinks, drugs or cigarettes. The commission rate charged by the banks are same which
is 0.1%, but the minimum amount of invoice is differed as it depends on the bank’s guidelines.
For Maybank Islamic, the minimum amount been set is RM25.00, while Bank Islam set the
minimum amount of invoice is RM100.00. The same rule applicable to the Islamic Bank, which
the bank has the legal rights to take any legal action towards the customers if they default in
monthly payments.

SG-i contractual agreement does not required the customers to registered any takaful
coverage or insurance. However, the major risk that always occur in SG-i contractual
agreement offered by Maybank Islamic is where the customers may take advantage on the
agreement for not returned the Shipping Guarantee-i for cancelation. This is because, the
customers want to cut cost by not having to signed any new Shipping Guarantee-i agreement
from the bank. The SG-i contractual agreement are only applicable for the goods shipped that
agreed by both bank as the guarantor as well as the customer and not more than that.

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 Even so, the bank may take legal actions to the customers if they failed to returned the
SGi for cancellation. For example, the bank may claim the actual cost of the shipment from the
customers or the loss that occurred during the agreement period. However, Bank Islam has not
set any major risk for the Shipping Guarantee-i agreement as the contract is considered as short-
term agreement. For late payment issues that occur during the contract period, the bank will
charge 1% per annum of the total of outstanding amount towards the customer. Plus, any legal
action can be taken by the bank as long as it is permitted by Bank Negara Malaysia (BNM).
The rate charged and the action taken are same for all Islamic Banks in Malaysia.

To summarize, the existence of the Shipping Guarantee-i offered by various Islamic

Banks in Malaysia are not been exposed fully to the customers. Potential applicants may think
this type of contractual agreement is only available at conventional bank. Even though, the SG-
i contract gives a lot of benefit to the customers which are the shipment of the goods will be
guaranteed by the bank as per agreed by both bank and customer. In additional, no hidden
charged will be imposed to the customers as all fee been charged will be explained fully by the
bank with the full knowledge of the customers by the time they signed the contract. Moreover,
SG-i contract only allowed for Halal goods and at the same time, it will encourage a positive
growth of Islamic economy. It also ensures all process incurred during the production follow
the Shariah principles especially during the shipment process. Therefore, Al-Kafalah terms
should be promoted widely in Malaysia to ensure the benefits of using the SG-i contract can
be acknowledge by all customers especially to the potential applicants.

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 CONCLUSION

Al-Kafalah is a concept that the debtor has his own guarantor that will back up for him
if any default happened. Besides, with the guarantor the debtor can persuade the creditor to
lend some amount of money to be borrowed. In addition, this concept also can prevent the
creditor to lose all the amount that had been lent if the debtor default of payment. Al-Kafalah
also train the debtor and the guarantor to be responsible on their obligation in this contract. Al-
Kafalah also have five types which is Al-Kafalah Bi Al-Nafs, Al-Kafalah Bil-Mal, Al-Kafalah
Bit-Taslim, Al-Kafalah Al-Munjazah and Al-Kafalah Al-Muallaqah. Every type has different
meaning and every type can be used for different situation. Last but not least, this concept has
been used at many Islamic bank and it is not wrong with religion.

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 REFERENCES

References
Afrizal, L. (2017). Implementasi Kafalah Dalam Lembaga Kewanga Syari'ah. Institusi Agama Islam
Negeri (IAIN) Metro, 11.

Hidayah, N. (n.d.). Fundamentals of Islamic Banking.

Khalid, M. (n.d.). Linkedln Corporation. Retrieved from slide share:

https://www.slideshare.net/mobile/emkay84/isb540-kafalah

Suhaimi, M. S. M., Fauzi, M. S. M., Noryatim, N., Noh, N. M., Shuhaimin, N., Jaafar, Q., ... & Muneeza,
A. (2016). Service based contracts used in Islamic finance: a comparison of hawalah,
wakalah, and kafalah. International journal of management and applied research, 3(4), 160-
171.

Hasnat, M. A., & Alom, S. (2017). The Implementation of Kafalah in Islamic Banking and Finance
Organizations in Malaysia. International Journal of Scientific and Research Publications, 10.

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