DECISION NO: 11 Letters Of Guarantee

DECISION OF TKBB ADVISORY BOARD

DECISION DATE : 07.03.2019
DECISION NO : 11
DECISION SUBJECT : Letters Of Guarantee

REFERENCE

REQUEST DATE : 22.01.2019
REQUEST NO : 7
REQUEST SUBJECT : Letters of Guarantee
REQUESTOR : TKBB – Letter of Guarantee, Credit Operation, Marketing, and Bank Advisory Committees

REQUEST SUMMARY:

In order to prevent different practices in the sector regarding the letters of guarantee given by participation banks and to adopt a common approach, it was necessary to obtain the opinion of the TKBB Advisory Board.

DECISION:

  1. The businesses or services for which a guarantee letter is to be given must be in areas deemed legitimate by Islamic law.

  2. While giving a letter of guarantee in areas deemed legitimate by Islamic law, the following conditions should be followed:

      2.1 No letter of guarantee can be given to persons or institutions whose field of activity is completely haram such as gambling and prostitution.

      2.2 In order to issue a letter of guarantee to persons or institutions, most of whose income is illegitimate, the amount of the guarantee letter must be covered by the addressee's halal earnings.

SHARIA BASIS

At its meeting dated 05.04.2019, the TKBB Advisory Board determined the Islamic grounds for the decision on "Guarantee Letters" dated 07.03.2019 and numbered 11 as follows:

  1. The fact that it is not permissible for participation banks to give a letter of guarantee for haram transactions is based on the principle that it is not permissible either to support something haram. Accordingly, arranging and issuing a letter of guarantee for an illegitimate transaction under the rules stipulated by Islam will be subject to the same provision as doing the transaction in question.

  2. A letter of guarantee may be given for the fields deemed legitimate by Islamic law. For, in Islam, it is permissible to carry out legitimate deeds and transactions, and it is also permissible to guarantee them. However, the following points should be considered in terms of the activities of the addressee when giving a letter of guarantee:

      2.1 A letter of guarantee cannot be given if none of the products and services of the addressee is legitimate. For, in this case, the addressee will use the service provided for a purpose that is not permissible and will repay the amount to the beneficiary of the guarantee letter from haram revenues.

      2.2 It is permissible to issue a letter of guarantee for addressees who are engaged in haram within their field of activity but also produce legitimate goods and services, provided that they have sufficient halal earnings. Because, according to a rule in Islamic law, it is accepted to make a contract with persons who have haram earnings but will pay the amount from their halal earnings. Otherwise, it will be difficult for individuals with religious sensitivity to carry out their normal economic activities in business and commercial life, and this may have negative consequences for the maslaha of Muslim societies.