Ruling on Guaranteeing Loans against Commission

Answered according to Shafi'i Fiqh by Darul Iftaa Jordan
What is the ruling on dealing with a company that guarantees loans, where it concludes agreements, with banks, stipulating that whoever fails to pay off a loan, the company will cover up to (80%) of that loan in return for taking (1.5%) from the total of that loan?

All perfect praise be to Allah, The Lord of The Worlds, and may His peace and blessings be upon our Prophet Mohammad and upon all his family and companions.

The above question indicates that the company guarantees debts due on clients in return for a commission. Actually, this involves matters that Sharia forbids, and they are:

First: Taking a wage against guarantee: The above company takes a commission against guaranteeing settlement of loans. In fact, the consensus of the Muslim scholars is that it is forbidden to take a wage against guaranteeing the settlement of debts. Ibn Al-Khattan(May Allah have mercy on him) said, "They(scholars) have unanimously agreed that gurantee-Kafalah(i.e. combining the guarantor`s liability with the liability of the party that`s principally responsible with regard to the claim)-in return for a wage is forbidden."{Al-Ekna`a Fi Masa`l Al-Ejmaa`, 2/173}.

During its second session, the International Islamic Fiqh Academy issued a resolution that stated, "Scholars have decided that taking a wage against Kafalah is prohibited, because when the guarantor pays off the debt due on the party that`s principally responsible with regard to the claim, it is similar to giving a loan againstbenefitto the giver, and this is forbidden."

Second: Gambling. Every guarantor in a commutative contract is liable to pay off or not to pay off the debt due on the party that`s principally responsible with regard to the claim. This is why Fiqh academies and public Fatwa departments have forbidden this since it involves gambling.

In conclusion, the form of the transaction given in the above question is forbidden. And Allah knows best.

This answer was collected from the official government Iftaa Department of Jordan.

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