A contract of guarantee/ suretyship which is used to provide assurance as to performance or liabilities. In other words, kafalah is instrumental to terminate any adverse change that may lead to uncertain or unpredictable outcomes with respect to the object or underlying of a transaction. Guarantees are typically used to secure the import of goods, in which case a bank issues a guarantee when the exporter discharges the liability for the goods on behalf of a third party. Each party, whether an exporter or importer, can be assured that the transaction will end up in receiving his dues (the price, for an exporter, and the goods for an importer) as agreed upon. The importer may be asked by his banker to post some form of collateral as surety, and typically pay a fee (ujrah) for this service. Kafalah, per se, is not an actual transaction, but is rather used to facilitate transactions such as international trade.
Kafalah is Arabic (كفالة) for suretyship.
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