Kafalah Financing Agreement (Malaysia)
KAFALAH FINANCING AGREEMENT
Islamic Financial Services Act 2013 (IFSA 2013) | BNM Shariah Standard on Kafalah | Contracts Act 1950 (Part XII — Guarantee) | Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA 2001)
Agreement Date: [Agreement Date]
Facility Reference: [Facility Reference]
Type of Kafalah: [Kafalah Type]
SECTION A — PARTIES
Kafeel (Guarantor):
Name: [Kafeel Name]
NRIC / SSM No.: [Kafeel ID Number]
Address: [Kafeel Address]
Relationship to Makful Anhu: [Kafeel Relationship]
Makful Anhu (Principal Debtor):
Name: [Makful Anhu Name]
NRIC / SSM No.: [Makful Anhu ID Number]
Address: [Makful Anhu Address]
Makful Lahu (Creditor / Islamic Bank):
Name: [Makful Lahu Name]
Address: [Makful Lahu Address]
SECTION B — GUARANTEED FACILITY
Financing Facility Type: [Facility Type]
Facility Reference: [Facility Reference]
Total Facility Amount: [Facility Amount]
Facility Tenure: [Facility Tenure]
Guaranteed Amount: [Guaranteed Amount]
Kafalah Fee (Ujrah): [Kafalah Fee]
SECTION C — KAFALAH UNDERTAKING AND DECLARATIONS
I/We, [Kafeel Name] (NRIC / SSM No.: [Kafeel ID Number]), hereby provide kafalah (Islamic guarantee) to [Makful Lahu Name] (the Makful Lahu) guaranteeing the obligations of [Makful Anhu Name] (the Makful Anhu) under the [Facility Type] facility (Ref: [Facility Reference]) up to the guaranteed amount of [Guaranteed Amount].
This kafalah is [Kafalah Type]. I/We confirm that this kafalah is given voluntarily, without compulsion, and that I/we have legal capacity to guarantee these obligations.
I/We confirm that this kafalah complies with the Shariah Standard on Kafalah issued by the Shariah Advisory Council of Bank Negara Malaysia, and that the guaranteed facility is a Shariah-compliant Islamic financing facility under the Islamic Financial Services Act 2013.
Kafeel Signature: _______________________________ Date: _______________________________
Name: _______________________________
Designation: _______________________________
Makful Anhu Acknowledgement: _______________________________ Date: _______________________________
Name: _______________________________
Accepted by Makful Lahu: _______________________________ Date: _______________________________
Name: _______________________________ Designation: _______________________________
FOR BANK USE ONLY
Facility approved by: _______________________________ Date: _______________________________
Shariah review ref: _______________________________
Kafeel (Guarantor)
________________
Signature
Makful Anhu (Principal Debtor)
________________
Signature
Makful Lahu (Creditor)
________________
Signature
What Is a Kafalah Financing Agreement (Malaysia)?
A Kafalah Financing Agreement in Malaysia fixes the principal, interest, and security on which credit is extended.
Bank Negara Malaysia regulates kafalah as a Shariah contract under the Islamic Financial Services Act 2013 (IFSA 2013). The Shariah Advisory Council (SAC) of BNM has issued a Shariah Standard on Kafalah that sets out the conditions, types, and operational requirements applicable to licensed Islamic financial institutions in Malaysia. The SAC's kafalah standard distinguishes between kafalah bi al-nafs (guarantee of person — surety for attendance), kafalah bi al-mal (guarantee of property or financial obligations), and kafalah bi al-dayn (guarantee of a specific debt obligation) — with the last being the most common in Islamic financing arrangements.
For a valid kafalah under Shariah principles as interpreted by BNM's SAC: (1) the kafeel must be legally competent (ahl al-ahliyyah) and must provide consent freely; (2) the makful lahu must be an identified creditor with a legal right to the guaranteed obligation; (3) the makful anhu must owe an existing or future obligation that is ascertainable; (4) the guaranteed obligation (maf'ul bihi) must be a legitimate Shariah-compliant debt or obligation; and (5) the kafalah may be conditional or unconditional — a conditional kafalah (kafalah mua'llaqah) becomes binding only upon the occurrence of a specified condition.
In Malaysian Islamic banking practice, kafalah is commonly structured as a kafalah bi al-dayn — where an Islamic bank guarantees a customer's trade finance obligations (such as letters of credit under tawarruq or murabahah facilities) or where a corporate guarantor provides kafalah for a subsidiary's Islamic financing. Islamic banks in Malaysia may charge a fee (ujrah) for providing kafalah under BNM's fatwa approving ujrah-based kafalah as a permissible commercial practice, distinguishing it from riba (interest) on the basis that the fee is compensation for the bank's undertaking and risk exposure rather than a return on money.
The Contracts Act 1950 applies to kafalah agreements as contracts of guarantee — the provisions on guarantee in Part XII of the Contracts Act (Sections 126 to 147) provide the underlying contractual framework, supplemented by Shariah conditions and BNM's SSOR on Kafalah for Islamic financial transactions.
The legal framework governing the Kafalah Financing Agreement (Malaysia) in Malaysia draws on several key statutes and regulatory bodies. Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Parties executing a Kafalah Financing Agreement (Malaysia) in Malaysia should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Financial Services Act 2013 (Act 758) sets the foundational requirements.
When Do You Need a Kafalah Financing Agreement (Malaysia)?
A Kafalah Financing Agreement in Malaysia is needed whenever a guarantor provides an Islamic guarantee for the financing obligations of a principal debtor to an Islamic financial institution or counterparty.
A Kafalah Financing Agreement is required when a Malaysian company (the makful anhu) applies for an Islamic financing facility from a licensed Islamic bank, and the bank requires the company's shareholders or directors to provide personal kafalah guarantees as a condition of the facility — creating a Shariah-compliant guarantee that meets the bank's credit requirements under IFSA 2013.
A Kafalah Financing Agreement is needed when an Islamic bank issues a kafalah letter of credit (kafalah wal-hawalah) or Islamic bank guarantee on behalf of a Malaysian importer or contractor, guaranteeing payment or performance to an overseas counterparty — replacing a conventional letter of credit with a Shariah-compliant instrument.
A Kafalah Financing Agreement is required when a Sukuk issuer's special purpose vehicle (SPV) requires a kafalah from the originator company as a credit enhancement for investors in the Sukuk programme, and the agreement must comply with the Securities Commission Malaysia's Guidelines on Sukuk and BNM's SSOR on Kafalah.
A Kafalah Financing Agreement is needed when a Malaysian Islamic microfinance institution (such as Agrobank or Bank Rakyat) requires kafalah from a savings cooperative (koperasi) or community group as a collective guarantee for individual member financing under Skim Pembiayaan Kumpulan (group financing scheme).
A Kafalah Financing Agreement is required when a takaful operator issues a financial guarantee (kafalah) as part of a takaful product — for example, a kafalah-based credit takaful that guarantees the outstanding financing balance in the event of the participant's death or total permanent disability.
Parties in Malaysia should prepare a Kafalah Financing Agreement (Malaysia) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.
What to Include in Your Kafalah Financing Agreement (Malaysia)
A valid Kafalah Financing Agreement in Malaysia under BNM's Shariah Standards must contain the following essential elements to be enforceable and Shariah-compliant.
Kafeel (Guarantor) Details: Full legal name, NRIC or SSM registration number, and address of the kafeel (guarantor). For corporate kafeels, include SSM registration number, registered address, authorised signatory name, designation, and NRIC. The kafeel must confirm legal capacity to guarantee and confirm that the guarantee is given voluntarily without compulsion.
Makful Anhu (Principal Debtor) Details: Full legal name, NRIC or SSM registration number, and address of the makful anhu (the party whose obligations are being guaranteed). For corporate makful anhu, include SSM number and relationship to the kafeel (e.g. director, shareholder, parent company).
Makful Lahu (Creditor / Obligee) Details: Full legal name and address of the makful lahu (the party in whose favour the kafalah is given — typically the Islamic bank or financing institution). Include the institution's BNM licence number under IFSA 2013.
Guaranteed Obligation Description: A precise description of the Islamic financing facility or obligation being guaranteed — including the facility type (murabahah, musharakah, ijarah, BBA), facility amount in Malaysian Ringgit (RM), facility reference number, and tenure. The guaranteed amount must be a defined and ascertainable sum.
Type of Kafalah: Specification of whether the kafalah is (a) unconditional and absolute (kafalah mutlaqah) — effective immediately; (b) conditional (kafalah muallaqah) — effective upon occurrence of a specified event such as default; or (c) limited in amount or time (kafalah muqayyadah). Most Malaysian Islamic banking kafalah agreements are conditional, becoming effective upon default by the makful anhu.
Kafalah Fee (Ujrah): Where the Islamic bank charges a fee for issuing a bank guarantee or letter of credit under kafalah, the fee amount, basis of calculation, and payment terms must be specified. The ujrah must be a fixed or determinable amount — not calculated as a percentage of the guaranteed sum over time, which would risk resembling riba.
Enforcement Conditions: The conditions under which the makful lahu may call on the kafalah — typically upon the makful anhu's default on the guaranteed financing facility, subject to any cure period or demand notice requirements.
Shariah Compliance Confirmation: A statement that the kafalah structure has been reviewed and approved by the makful lahu's Shariah committee or the SAC of BNM, and that all elements comply with BNM's SSOR on Kafalah.
Signatures and Date: Signatures of the kafeel, makful anhu (where required by the Islamic bank), and authorised representative of the makful lahu, with date of execution.
Additional compliance elements for a Kafalah Financing Agreement (Malaysia) used in Malaysia include: Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Forms-legal.com provides this template as a starting point for Malaysia-compliant documentation.
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Forms Legal. (2026). Kafalah Financing Agreement (Malaysia) (Malaysia) [Legal document template]. Forms Legal. https://forms-legal.com/malaysia/financial/agreements/kafalah-financing-agreement-malaysia
"Kafalah Financing Agreement (Malaysia) (Malaysia)." Forms Legal, 2026, https://forms-legal.com/malaysia/financial/agreements/kafalah-financing-agreement-malaysia.
@misc{formslegal-kafalah-financing-agreement-malaysia,
author = {{Forms Legal}},
title = {Kafalah Financing Agreement (Malaysia) (Malaysia)},
year = {2026},
howpublished = {\url{https://forms-legal.com/malaysia/financial/agreements/kafalah-financing-agreement-malaysia}},
note = {Free legal document template. Based on Financial Services Act 2013 (Act 758)}
}Frequently Asked Questions
Yes, Islamic banks in Malaysia are permitted to charge a fee (ujrah) for providing kafalah (Islamic guarantee or bank guarantee) under the BNM Shariah Advisory Council's ruling that ujrah-based kafalah is a permissible commercial practice. The SAC distinguishes the ujrah from riba (interest) on the basis that the fee is compensation for the bank's undertaking, administrative services, and risk exposure in issuing the guarantee — not a return on money lent. Under BNM's SSOR on Kafalah, the ujrah must be a fixed amount or calculated on a basis that is not directly proportionate to the guaranteed sum over the period of exposure in a manner that replicates interest. In practice, Malaysian Islamic banks charge upfront or annual fees for kafalah bank guarantees and letters of credit, which are disclosed in the facility letter and the Product Disclosure Sheet (PDS) required under the Financial Services Act 2013 and BNM's Guidelines on Product Disclosure.
Kafalah and conventional bank guarantees both provide a form of credit enhancement — a third party (the guarantor or kafeel) undertakes to pay if the principal debtor defaults. The key differences lie in their legal basis, fee structure, and Shariah validity. A conventional bank guarantee under the Contracts Act 1950 (Part XII) and the civil law framework involves the bank as surety under a contract of guarantee. Kafalah under Islamic law adds the requirement that the guaranteed obligation itself must be Shariah-compliant (no riba or gharar), the fee structure must avoid resembling interest, and the kafalah documentation must comply with BNM's SSOR on Kafalah for transactions by licensed Islamic financial institutions. In terms of enforceability, both a conventional guarantee and a kafalah are enforceable under the Contracts Act 1950 in Malaysian courts — there is no separate Islamic contract act. The Shariah validity of kafalah is primarily relevant for the institution's compliance obligations under IFSA 2013.
Islamic jurisprudence distinguishes three primary types of kafalah based on what is being guaranteed. Kafalah bi al-nafs (personal kafalah) is a guarantee of a person's presence — guaranteeing that the makful anhu will appear or perform a duty in person, such as attending court proceedings. This form is rarely used in modern finance. Kafalah bi al-mal (financial kafalah) is a general guarantee of financial obligations — the kafeel guarantees to pay any financial liability of the makful anhu to the makful lahu without specifying a particular debt. Kafalah bi al-dayn (debt kafalah) is a guarantee of a specific identified debt obligation — the kafeel guarantees to pay a defined amount owed by the makful anhu if the latter defaults. In Malaysian Islamic banking, the most common form is kafalah bi al-dayn — used for Islamic bank guarantees, letters of credit, Sukuk credit enhancement, and personal guarantee documentation for Islamic financing facilities.
Under classical Shariah jurisprudence, kafalah can be given without the consent of the makful anhu (principal debtor) — the kafeel may voluntarily guarantee another's obligation as an act of benevolence (tabarru). However, in Malaysian Islamic banking practice, the makful anhu is typically made a party to the Kafalah Financing Agreement and must sign the document — both to confirm awareness of the guarantee and to facilitate the Islamic bank's documentation of the overall facility structure. Requiring the makful anhu's signature also satisfies conventional contract law principles under the Contracts Act 1950, which requires that the nature and extent of the principal debtor's obligations be documented. Under BNM's SSOR on Kafalah, Islamic financial institutions must ensure that all parties are informed of their obligations — making the makful anhu's acknowledgement a practical compliance requirement even if not strictly a Shariah necessity.
Kafalah is widely used in Malaysian small and medium enterprise (SME) Islamic financing through several government-backed and institutional programmes. Credit Guarantee Corporation Malaysia Berhad (CGC), a government-owned entity, provides kafalah-based guarantees under its Islamic financing guarantee schemes (such as Portfolio Guarantee and Flexi Guarantee) — enabling SMEs to access Islamic banking facilities from BNM-licensed banks without sufficient collateral. Under CGC's Islamic guarantee products, CGC acts as the kafeel guaranteeing the SME's (makful anhu) financing repayment obligations to the Islamic bank (makful lahu). Similarly, Syarikat Jaminan Pembiayaan Perniagaan (SJPP), established under the Ministry of Finance Malaysia, provides government-backed kafalah guarantees for SME financing. Agrobank and Bank Rakyat — licensed Islamic development banks — use group kafalah schemes (kafalah jama'iyyah) for agricultural and cooperative financing, enabling smallholders and cooperative members to provide mutual guarantees for each other's Islamic financing obligations.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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