Bank Guarantee

Islamic Bank Guarantee (IBG) is an indemnity letter issued by an Islamic bank to the customer in the form of a guarantee under the principles of kafālah in which the bank becomes liable if the customer fails to perform his obligation to the third party. It is a binding written obligation issued by the bank to assure the beneficiary the due payment as specified in the letter of guarantee if any form of default occurs by its customer. This facility usually functions to protect beneficiaries (e.g., government departments and statutory bodies) against non-fulfillment of the bank customer’s obligations. Thus, the issuing bank undertakes the risk and liability on behalf of the beneficiary. In return, the customer pays a certain amount charged by the bank. If the customer fails to fulfill his obligation, the issuing bank will pay the beneficiary and claim accordingly from the customer to reimburse the payment made.


Can an Islamic Bank State in an L.C. or Letter of Guarantee That the Fee Charged by a Conventional Bank Shall Be Obtained from the Beneficiary?
Resolution No. 12 (2/12): Letter of Guarantee
Can an Islamic Bank Issue a Guarantee for a Contractor Doing Work for a Conventional Bank?
Can the Murabahah Seller Take a Mortgage from the Purchase Undertaker before It Buys the Subject of the Contract?

Islamic Financial System ©

 

 


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