---
title: "What is Letter of guarantee? | IslamicOpenFinance™"
description: "A bank's written guarantee to a beneficiary; AAOIFI and Bank Negara Malaysia take different positions on charging for it."
url: https://islamicopenfinance.com/glossary/letter-of-guarantee/
lang: en-GB
source: "IslamicOpenFinance"
---

[Glossary](https://islamicopenfinance.com/glossary/) / [Lease, agency and service contracts](https://islamicopenfinance.com/glossary/#lease)

Lease, agency and service contracts

# Letter of guarantee

A bank's written guarantee to a beneficiary; AAOIFI and Bank Negara Malaysia take different positions on charging for it.

A letter of guarantee is a written undertaking by a bank to pay a beneficiary if the bank's customer fails to meet an obligation. AAOIFI's guarantees standard does not permit a fee charged as consideration for the guarantee itself, because the amount and duration would then be priced, but allows the applicant to bear administrative expenses at a level not exceeding what others charge for the service. Bank Negara Malaysia's kafalah policy document allows the guarantor to charge a fee, either fixed or as a percentage of the guaranteed amount. Fee design therefore depends on which authority governs the product.

## Sources

- [AAOIFI Shari'ah Standards, English edition (full text, PDF): Shari'ah Standard No. 5, Guarantees, items 6/1/1 and 6/1/2](https://aaoifi.com/wp-content/uploads/2017/12/Shariaa-Standards-ENG.pdf)
- [Bank Negara Malaysia, Kafalah policy document, 2017: imposition of fees or charges on kafalah](https://www.bnm.gov.my/documents/20124/938039/PD+Kafalah_130417.pdf)

This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.

## Related terms

[**Kafalah** A guarantee: a guarantor joins the guaranteed party in assuming a specified liability.](https://islamicopenfinance.com/glossary/kafalah/) [**Documentary credit** A bank's written undertaking to pay a seller, on the buyer's instruction, against presentation of stipulated documents.](https://islamicopenfinance.com/glossary/documentary-credit/) [**Ujrah (fee)** A fee, wage or rent paid for a service, an agency or the use of an asset; the price side of ijarah and paid wakalah.](https://islamicopenfinance.com/glossary/ujrah/) [**Hamish jiddiyyah (security deposit)** A deposit paid by a customer to secure a promise to buy; it covers only actual loss if the promise is broken.](https://islamicopenfinance.com/glossary/hamish-jiddiyyah/)

**Lease, agency and service contracts**

1. [Ijarah](https://islamicopenfinance.com/glossary/ijarah/)
2. [Ijarah muntahia bittamleek](https://islamicopenfinance.com/glossary/ijarah-muntahia-bittamleek/)
3. [Wakalah](https://islamicopenfinance.com/glossary/wakalah/)
4. [Kafalah](https://islamicopenfinance.com/glossary/kafalah/)
5. [Hawalah](https://islamicopenfinance.com/glossary/hawalah/)
6. [Ju'alah](https://islamicopenfinance.com/glossary/jualah/)
7. [Rahn](https://islamicopenfinance.com/glossary/rahn/)
8. [Ijarah mawsufah fi al-dhimmah (forward lease)](https://islamicopenfinance.com/glossary/ijarah-mawsufah-fi-dhimmah/)

[All 221 terms](https://islamicopenfinance.com/glossary/)