I was surprised to receive a call from a good friend who was inquiring about the legitimacy of his guarantee to one of his friends in order to obtain a loan. It was hasty, in a way that does not correspond to the amount of responsibility arising from the loan guarantee and the serious consequences associated with it.
The subject of the loan guarantee has unfortunately recently spread, and many people have pledged to guarantee the repayment of other people’s loans, which is legally called “kafalah” or surety. Therefore, we will discuss the legal effect of this guarantee, the related cautions in entering into these obligatory and sensitive transactions, and what will facilitate these transactions without harming those whose sole purpose was to help a close friend who was going through a financial or legal crisis.
The surety or kafalah is generally divided into two basic types: Bail for appearance and bail of payment and performance. The first is to ensure that the guarantor will bring the guaranteed person to authorities at their request. The second is a contract under which the guarantor undertakes to implement the debtor’s obligation if the latter does not execute it.
However the liability of this type of guarantee — in the case of the debtor’s inability to repay their loan — extends to the guarantor who has secured the payment of the debt to the creditor and consequently leads to disputes between the parties of this process. The guarantor is also obliged to bring the guaranteed person to authorities, as long as he committed himself to do so or he will be legally responsible for that.
Even if the guarantor can prove he was unable to bring the guaranteed person before authorities, he faces obstacles and tedious procedures.
Many people confuse the two principal types of surety or kafalah, since they do not know that the guarantor or sponsor has the right to require that this kafalah must be a bail of appearance only.
If he signed the bail form that does not exclude the bail of payment and performance, he therefore will bear responsibility for the payment of the debt and its consequences.
The problem is not in the concept of kafalah or surety, but in the method of its application and commitment, as there is no law in the Kingdom for this bail, only circulars and ministerial decisions, as well as jurisprudence and policies presented by financing companies and banks to their beneficiaries.
What is needed is a strict and explicit system that clarifies and limits the responsibilities of the parties to this process, as well as the ways in which they are carried out, their mechanisms and the consequent legal responsibilities.
Finally, until the completion of such regulations and facilities, the person must be cautious when entering into one of these transactions and focus on the terms and regulations of such bails and their consequences.
Dimah Talal Alsharif is a Saudi legal consultant, head of the health law department at Majed Garoub and a member of the International Association of Lawyers.
Twitter: @dimah_alsharif
