An Analysis of the Jurisprudential and Juridical Nature of Bank Guarantee Letters

Bank guarantee letter is a written promise issued by a bank to pay a definite or definable sum of money to the beneficiary in the event that the obligor fails to honor its obligations in accordance with the terms and conditions of the guarantee/agreement/contract. Although bank guarantee letter is a modern mechanism for facilitating and accelerating the economic activities, its jurisprudential and juridical aspects have not been paid enough attention, as it is a modern phenomenon. In this paper, using the documentary and descriptive-analytical method, we have tried to answer the fundamental question of its capability of being adapted to the Islamic jurisprudence and law. There is nearly no disagreement between Muslim jurisprudents about the permissibility of using bank guarantee letters, but there are some disagreements between them in regard to their nature and therefore their conditions and consequences. As regards to the issue of their legitimacy, the jurisprudents have adduced such theories as Daman, Kafalah, the contract of independency of bank guarantee letters, obligation to third party and so on. Given the lack of absolute consistency between the conditions and elements of guarantee letters, on the one hand, and those of such contracts as Wakalah, Daman and Kafalah, on the other hand, it seems that the contract of independency is more likely to be the proper theory.