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Islamic Finance




Guarantee


An essentially noncommutative contract that is used to secure a commutative contract (such as a sale contract/aqd al-ba’i) or obligations such as debts or performances, either from default or failure to perform as agreed in the contract. The main types of guarantee include pledges, personal guarantees, checks, promissory notes, attestations, written documents, etc. Reinforcing a contract of exchange (like a sale contract) or a contract of property rights with a contract of guarantee is permissible by shari’a, as this doesn’t affect the validity of the core contract to which it is attached. However, shari’a prohibits stipulating guarantees in fiduciary contractssuch as agency contracts or contracts of wadiy’ah since such a stipulation contradicts the very nature of fiduciary contracts which are principally based on trust and good faith. But this may be allowable if it is meant to address cases of misconduct, manipulation, negligence or breach of contract. In the same token, the capital provider (rab al mal) in mudaraba have no right to seek a guarantee (as to capital or return) from the labor provider (worker or mudarib).

Guarantee is known in Arabic as kafalah or damaanah.



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