Permissibility of Guarantees and Its Relevance to Contracts

The basis of the permissibility of stipulating guarantees in contracts is that it protects property, which is one of the objectives of Shariah. The other authorities mentioned in the standard in support of each kind of guarantee can be cited as authority for the permissibility of guarantees in contracts. 

Guarantees in Trust Contracts

Assets held on trust must be returned to their owners in the manner in which they were received and in their original physical state promptly after the owners demand their return. Allah, the Almighty, says: {“Allah doth command you to render back your trusts to those to whom they are due”}. Since such assets are not subject to exchange, they are purposely meant either for custody with permission to use them, such as assets on deposit, or for charitable acts, such as a loan of tangible assets. Therefore, the persons holding such assets are considered by the owners from the beginning as capable of returning them to their owners on demand, making them trustees, and as a principle of Shariah, a trustee is not held liable (for loss of, or damage to, an asset held on trust), except in circumstances of misconduct, negligence or violation of the conditions agreed upon, because in other circumstances it is inconsistent with the fundamental principle of trusts for a trustee to be held liable. 

« Appendix A - Brief History of the Preparation of the Standard Appendix C - Definitions »