What is the ruling on a letter of guarantee, and what is its legal evidence? Is it considered a loan that brings benefit, or a guarantee for which compensation is not permissible to take? And what is the legitimate alternative if it is not permissible?

A bank guarantee is a definitive undertaking by a bank to pay a specific amount to a beneficiary on behalf of a client, should the client fail to fulfill their obligations. A letter of guarantee is considered a contract of suretyship (kafalah), and the majority of scholars hold that it is impermissible to take compensation for it because it ultimately becomes a loan that brings benefit (qard jarr naf'an), and because the contract of suretyship is based on assistance and benevolence. Taking compensation for it may constitute consuming wealth unjustly.

Letters of guarantee are divided into preliminary and final, and can be with full, partial, or no coverage. The Islamic Fiqh Academy has ruled that a letter of guarantee, whether with coverage or not, involves adding the guarantor's liability to that of another (kafalah). And that kafalah is a gratuitous contract for which it is impermissible to take a fee, as it resembles a loan that brings benefit, which is forbidden by Sharia.

Accordingly, it is not permissible to take a fee for the guarantee process itself, but administrative expenses for issuing the letter of guarantee are permissible, provided they do not exceed the customary fee (ajr al-mithl).