CREDIT GUARANTEE SCHEME: A COMBINATION OF KAFĀLAH AND WAKĀLAH BI AJR AS AN ALTERNATIVE TO KAFĀLAH BI AJR

The idea behind the establishment of a credit guarantee scheme in the market is to assist small- and medium-sized enterprises (SMEs) to get access to financing from financial institutions by providing them a liquidity guarantee. Financial institutions’ provision of liquidity at a reasonable cost to these enterprises, especially those that do not possess sufficient collateral, encourages further expansion of financing for small and medium enterprises. In the current practice, a guarantee is given to facilitate enterprises to have better access to financing from financial institutions by improving their rating. The product kafālah bi ajr (a guarantee for which a fee is charged) is usually used for this purpose. Under kafālah bi ajr, a guarantee is given, in return for which the guarantor charges the debtor a certain amount as a fee.