MAHYUDDIN KHALID

emkay@salam.uitm.edu.my

CONTENT
DEFINITION

EVIDENCES

PILLARS

TYPES

DEFINITION EVIDENCE PILLARS OF AL-KAFALAH TYPES OF AL-KAFALAH ADVANTAGE OF AL-KAFALAH CONDITIONS OF AL-KAFALAH APPLICATION OF AL-KAFALAH

CONDITIONS

APPLICATION

AL-KAFALAH
DEFINITION

Kafalah
Conjoining of the guarantors liability of the guaranteed

EVIDENCES

Dhaman
Guarantee for future obligations involving property such as debt obligation, the return of borrowed property, the delivery of products, payment for purchase of products or services or the security if goods.

PILLARS

TYPES

CONDITIONS

Hamalah
Guarantee for future obligations involving diyat (bloodmoney)

APPLICATION

DEFINITION
DEFINITION

EVIDENCES

Kafalah comes from the root word kafala ( )which means junction joining combination responsibility or suretyship. Literally
Guarantee, bail, surety, responsibility, suretyship

PILLARS

Technically
The pledge given by the guarantor/surety (al-kafil) to a creditor (al-makful lah) on behalf of the principal debtor (almakful anh) to secure that the guaranteed (al-makful bih) i.e the debtor, will be present at a definite place, e.g. to pay his debt, or fine, or, in the case of retaliation, to undergo punishment.

TYPES

CONDITIONS

APPLICATION

The SAC of BNM :

A guaranteed contract on a certain asset, usufruct and/or service provided by a guarantor to the parties involved
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EVIDENCE
DEFINITION

Al-Quran

EVIDENCES

PILLARS

TYPES

CONDITIONS

APPLICATION

EVIDENCE
Hadith
DEFINITION

EVIDENCES

PILLARS

TYPES

CONDITIONS

The prophet (s.a.w) said to the effect, The Guarantor is the debtor Narrated from Salamah bin al-Akwa, he says: Once we were with Prophet (s.a.w), then a group of people came with a funeral procession and said O prophet (s.a.w), please conduct the funeral rites for this corpse.. He asked: Has he left anything? They replied: Nothing. Then he asked: has he left any debt? They replied: Yes, three dinar, then the Prophet (s.a.w) said: You should pray for him. Then Abu Qatadah said: O Prophet (s.a.w) please pray for him, I bear the liability of the debt, Then the Prophet (s.a.w) prayed for the corpse.
(Narrated by al-Bukhari)

APPLICATION

Ijma
The scholars of Islam unanimously agreed on the legitimacy of al-kafalah in principle since it is a necessity in the society

PILLARS OF AL-KAFALAH
1. Guarantor/surety (al-kafil)
DEFINITION EVIDENCES

A person who gives the guarantee is also called surety. A person who agrees to be responsible for another persons liability especially paying for his debt

2. Creditor (al-makful lah)

PILLARS

A creditor to whom the guarantee is given

TYPES

3. Principal debtor (al-makful anh)

The person in respect of whose default the guarantee is given. He is also called the principal debtor.

CONDITIONS

4. Guaranteed (al-makful bih) i.e the debtor, things

The claim itself whether it relates to the person or property.

APPLICATION

5. Sighah
Offer Acceptance

FLOWS OF AL-KAFALAH
DEFINITION

Kafil (Gurantor)
EVIDENCES

PILLARS

TYPES

Makful Bih (Debtor/ Things)

CONDITIONS

APPLICATION

Makful Anh

(Principle Debtor)
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Makful Lah (Creditor)

TYPES OF AL-KAFALAH
Al-Kafalah bi al-nafs ()
DEFINITION

Guarantee to bring someone to a specific authority, such as the judiciary

EVIDENCES

Al-Kafalah bi al-mal ()
Guarantee to return an asset to its owner Can be divided into three main categories:
1. Kafalah bi al-dayn
Guarantee of repayment of another partys loan obligation Guarantee of payment for an item or a guarantee of delivery in a transaction Guarantee that an asset is free from any encumbrances specific for transactions that involve the transfer of titles of rights and ensures that an asset is free from any encumbrances

PILLARS

TYPES

2.
CONDITIONS

Kafalah bi al-ayn/ kafalah bi al-taslim

APPLICATION

3.

Kafalah bi al-darak

AL-KAFALAH BI AL-NAFS
DEFINITION

EVIDENCES

PILLARS

TYPES

CONDITIONS

APPLICATION

Guarantee of Person In Suretyship for a person the guarantor is assuming the responsibility to make sure the presence of the principal in a lawsuit. This is also possible in cases where the principal owes the creditor. The guarantor is required only to make sure the presence of the person. He is not liable to settle the debt on behalf of the principal. If the principal dies the guarantor is not bound to pay on his behalf. This is because the guarantee given is for the presence of the principal and not for the settlement of his debt.

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AL-KAFALAH BI AL-MAL
DEFINITION

EVIDENCES

PILLARS

TYPES

CONDITIONS

APPLICATION

Kafalah for the property can be both for the settlement of a debt (dain) or a guarantee that a certain specific thing (ain) would be returned. In this case a guarantor is not freed of from liability if the creditor or the owner of the thing dies. The heirs of the creditor or the owner of the thing can demand that the guarantor settle the debt or return the thing. For instance, the guarantor is liable to make sure that a certain property bought by the buyer will be returned to him. The creditor has the option of demanding repayment from either the principal or the guarantor.

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EFFECTS OF AL-KAFALAH
DEFINITION

EVIDENCES

PILLARS

TYPES

CONDITIONS

APPLICATION

Once a valid kafalah is concluded it establishes a right to the creditor to claim the debt from the guarantor. The principal debtor is not released from the debt. The creditor has an option whether to demand the payment of debt from the principal debtor or from the guarantor. Kafalah is a gratuitous contract. This means that the service rendered by the guarantor is done freely without any reward or payment. However, it is possible that a guarantor may demand a certain fee for his service.

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THE ADVANTAGE OF AL-KAFALAH

DEFINITION

EVIDENCES

Kafalah is gratuitous contract and authenticate/ security contract Creditor:

Could authenticate the loan repayment and ensure that he (the creditor) can retrieve his money back by demanding the payment from the guarantor in case of default payment by the debtor/ pledger Entitles the creditor to call upon either the debtor or the guarantor to perform the obligation and demand from one will not affect his right to go after the other if the obligation is not fully satisfied

PILLARS

TYPES

CONDITIONS

APPLICATION

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THE ADVANTAGE OF AL-KAFALAH

DEFINITION

Debtor
Minimize and spread his risk because the guarantor by his guarantee, joined his liability to the creditor Can convince the creditor to lend him the money since he has somebody to back him up as the guarantor of payment. Nobody will normally lend him any amount of money if he has nobody that can support him and perform the obligation on his behalf in case of default

EVIDENCES

PILLARS

TYPES

CONDITIONS

APPLICATION

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CONDITIONS OF AL-KAFALAH
DEFINITION

Guarantor
Has the capacity and capability to be a guarantor Has the cant withdraw or pullback after the loan agreement has been sealed or after the money has been given to the debtor No limit to the number of people that can be a guarantor to the debtor Not forced or threatened by anybody to be the guarantor

EVIDENCES

PILLARS

TYPES

CONDITIONS

APPLICATION

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CONDITIONS OF AL-KAFALAH
DEFINITION

Creditor
Must be known by the guarantor Has the right to claim the debt from either the debtor or the guarantor in case of default Can relief the guarantor from his obligation but the debtor is still obligated to settle his debt Can relief the debtor from his obligation and in this case, the guarantor is no longer obliged to settle the debt on behalf of the debtor

EVIDENCES

PILLARS

TYPES

CONDITIONS

APPLICATION

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CONDITIONS OF AL-KAFALAH
DEFINITION

Guaranteed Object/ Asset

Object must be an established liability (fungible. Nonfungible, a person or an action) Object of financial guarantee must be possible to collect from the guarantor. A guaranteed financial debt must be valid and binding liability

EVIDENCES

PILLARS

TYPES

CONDITIONS

APPLICATION

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MODERN APPLICATION
Two ways of application of al-kafalah in IFI
DEFINITION EVIDENCES

PILLARS

TYPES

When the financial institutions act as a guarantor, where the guarantee is for its customer to a third party. Its a recourse guarantee. AAOIFI stipulates that only recourse could be done by a financial institution unless its shareholders and investors have authorized to make such benevolent donations. Guarantee contracts
Murabaha Ijarah Salam Istisna Sharikah and Mudarabah, Guarantee in documentary credit, Credit card based on contract of kafalah.

CONDITIONS

APPLICATION

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END OF CHAPTER
DEFINITION

EVIDENCES

PILLARS

TYPES

CONDITIONS

APPLICATION

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