Improvising Kafalah Bank Guarantee-i / Dr Sharifah Faigah Syed Alwi

Kafalah (guarantee) is a tabarru' (voluntarily gift) contract where the majority of past Muslim jurists had the opinion that imposing ujrah (fee) on kafalah is not allowed. Islamic banks in Malaysia offer Kafalah Bank Guarantee-i (BG-i) as one of their trade finance facilities and they do charge fees for it. There are three methods in charging fees for Kafalah BG-i practiced by Islamic banks in Malaysia such as using the percentage ruled by the Association of Bankers Malaysia, calculating the actual cost incurred by the banks in issuing the BG-i and using the bank’s own calculation in determining the fees. These different methods occur because the Shariah Committees of Islamic banks have different interpretations towards the nature of kafalah being a tabarru' contract. The objective of this paper is to resolve Shariah issues with regards to current Islamic banks' practices on charging fees on Kafalah BG-i by embedding the concept of wakalah (agency) in BG-i. The Islamic banks are allowed to charge fees based on their rendered services under wakalah contract. This new improvised BG-i where both kafalah and wakalah contracts are combined in BG-i will be proposed to Bank Negara Malaysia and Islamic banking industry with the hope that it will be accepted globally.