Ruling on requesting a guarantee from a riba-based bank?

The bank guarantee is a limited-time, irrevocable, binding
commitment that is issued by the bank at the request of another party (a
customer of the bank) to pay a certain amount of money, at the request of
another party that has an interest with the customer, in return for the
customer entering into a bidding process or carrying out a project properly,
according to specifications, so that the beneficiary will benefit from this
guarantee if the customer delays or falls short in carrying out what he
committed to do for the beneficiary with regard to the bidding process or
carrying out a project and the like. In that case the bank will deduct from
the customer what it paid to the beneficiary.

End quote from Fiqh an-Nawaazil by Dr. Bakr ibn
‘Abdullah Abu Zayd (1/201)

Based on that, the letter of credit – that is not covered –
is a guarantee from the bank regarding the customer. Therefore it is not
permissible to charge a fee for it, because giving the guarantee is regarded
as an act of charity, and because of what that may lead to of falling into
riba.

That is because the guarantor (the bank) is committed to pay
the debt on behalf of the person who is guaranteed, if he does not pay up,
and if the guarantor (the bank) pays on his behalf, it becomes a loan and
the fee for giving the guarantee is something extra to the loan, so it is
riba.

Ibn al-Mundhir (may Allah have mercy on him) said: All the
scholars from whom we acquired knowledge are unanimously agreed that
offering a guarantee in return for a fee taken by the one who gives the
guarantee is not lawful and is not permissible.

End quote from al-Ishraaf ‘ala Madhaahib Ahl al-‘Ilm
(6/230)

Ibn Jareer at-Tabari (may Allah have mercy on him) said in
Ikhtilaaf al-Fuqaha’ (p. 9):

If a man gives a guarantee to another man to pay money he
owes to a third man, in return for a fee that the one who is guaranteed
agreed to pay, the guarantee on that basis is not valid. End quote.

Ibn Qudaamah said in al-Mughni (6/441):

If he says: Guarantee me and I will give you one thousand,
that is not permissible, because the guarantor is obliged to pay the debt
(on behalf of the one whom he guaranteed), so if he pays it, the one who was
guaranteed owes him; therefore it becomes like a loan, so if he takes
compensation for that, it becomes a loan that brings benefit, and that is
not permissible.

End quote.

It says in a statement of the Islamic Fiqh Council concerning
bank guarantees:

Firstly: Bank guarantees of all kinds are either with or
without coverage. If the guarantee is without coverage, then the guarantor
becomes liable for whatever the guaranteed person is liable for, and is
bound by the consequences, now or in the future. In fact this is what is
meant in Islamic fiqh by the term damaan or kafaalah (guarantee).

If the bank guarantee is covered, then the relationship
between the one who requested the guarantee and the one who issued it is a
relationship of wakaalah (appointing someone to do something on one’s
behalf), and wakaalah is valid with or without payment, so long as the
purpose of the guarantee is to serve the interests of the beneficiary (the
one to whom payment is guaranteed).

Secondly: kafaalah (guarantee) is an act of charity that is
intended to show kindness and grant relief, and the fuqaha’ have stated that
it is not permissible to receive compensation for that, because in the event
of the guarantor paying the amount he guaranteed, it becomes akin to giving
a loan that brings benefit to the lender, and that is prohibited according
to sharee‘ah.

The following was determined:

Firstly: that it is not permissible to charge a fee for the
bank guarantee in return for offering a guarantee – where the amount of
money and the timeframe are mentioned – whether it is with or without
coverage.

Secondly: charging administration fees for issuing bank
guarantees of either type is permissible according to sharee‘ah, so long as
care is taken not to charge more than the usual charges for such procedures.
If full or partial coverage is offered, it is permissible to figure out the
real costs of issuing the guarantee. End quote from Qaraaraat Majma‘
al-Fiqh al-Islami (p. 25)

In the first conference of the Islamic Bank of Dubai, the
following statement was issued:

Bank guarantees involve two things: wakaalah (asking someone
to act on one’s behalf) and kafaalah (guarantee).

It is not permissible to charge a fee for kafaalah
(guarantee), but it is permissible to charge a fee for wakaalah (asking
someone to act on one’s behalf). But with regard to the fee for wakaalah,
attention should be paid to reflecting the actual costs borne by the bank
for the purpose of offering this service, because usually when issuing a
guarantee there is some work that the bank carries out, according to bank
procedures. This work involves, in particular, gathering information and
studying the project for which the letter of credit will be granted. It also
involves what the customer requests from the bank of services having to do
with the project, such as collecting dues from the owners of the project.

Working out the amount of the fees is to be left to the bank,
which should do it in such a way as to make it easy for people to carry out
their business, and in accordance with business norms.

End quote from Mawsoo‘ah al-Qadaayaa al-Fiqhiyyah al-Mu‘aasirah
wa’l-Iqtisaad al-Islami by Dr ‘Ali as-Saaloos (p. 644).