The Core Structure
A kafalah contract involves three parties:
- Kafil (الكَفِيل) — the guarantor who undertakes liability
- Makful ‘anhu (المَكفُولُ عَنهُ) — the principal debtor
- Makful lahu (المَكفُولُ لَهُ) — the creditor/beneficiary
When the principal debtor fails to perform, the creditor can demand performance from the guarantor. This is additive liability in most schools: the creditor now has two parties to pursue, not just one.
Kafalah vs. Hawala
| Kafalah | Hawala | |
|---|---|---|
| Effect | Adds a guarantor | Transfers the debt |
| Original debtor | Remains liable | Released |
| Creditor can pursue | Both kafil AND original debtor | Only the transferee |
| Classical purpose | Security/guarantee | Debt assignment/transfer |
Modern Applications
Letters of Guarantee: Banks issue guarantees on behalf of clients (for contractors, importers, etc.) — the bank is the kafil. The Islamic structure requires that the bank issue the guarantee in return for a fee, without charging interest on the contingent liability.
Performance Bonds: Construction and procurement contracts require guarantees of performance. An Islamic bank as kafil provides a performance bond for a fee (ujra), not as a loan.
AAOIFI Standard 5 covers kafalah in detail and permits fees (ujra) for the service of guarantee, distinguishing them from riba since the fee is for the service of issuing the guarantee, not for the passage of time.
See also: Fiqh Al Ujra, Fiqh Al Gharar, Fiqh Al Bay Al Muajjal, Fiqh Al Ijara Al Muntahiya Bil Tamleek, Fiqh Al Wakala