As part of banking services, an Islamic bank offers issuance of various types of letters of guarantee against a fee

Fatawa Question

As part of banking services, an Islamic bank offers issuance of various types of letters of guarantee against a fee. Such letters of guarantee are issued based on a request from the bank’s customer. The letter of guarantee has a validity period as required by the beneficiary. Sometimes, due to the needs of the underlying project, a customer may apply for an extension in the expiry of guarantee for another period of time, and in other cases it may return the original guarantee for cancellation before its agreed validity period. Shariah guidance is sought in relation to the following: In case of extension in the validity of the letter of guarantee, can the Islamic bank charge a fee? Is the bank under obligation to pay back the corresponding part of the fee on a pro rata basis in case of early cancellation of the letter of guarantee ?

Fatwa

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Publisher

Islamic Finance News

Publication Date

2015-04-15

Country of Publication

Malaysia

Main Subjects

Economics & Business Administration
Islamic Studies

Data Type

Fatawa

Language

English

Record ID

BIM-783034

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• AMA