Is It Permissible to Pay a Company to Act as a Rental Guarantor?

Answered by Shaykh Muhammad Carr

Question

In student housing abroad, some tenants under 18 must pay a third-party company to act as a guarantor if no parent is available. The company charges a fixed, non-refundable fee and assumes responsibility for unpaid rent.

Is this payment permissible, or does it involve riba, gharar, or issues related to paid guarantorship?

Answer

In the Name of Allah, the Most Merciful and Compassionate.

I pray you are in good faith and health. May Allah reward you for ensuring your transactions are compliant with Islamic Law.

Allah says,

“O you who believe, devour not your wealth between you through falsehood; but only through trade by your complete mutual consent.” [Quran, 4:29]

Allah says,

“O believers! Fear Allah, and give up outstanding interest if you are (true) believers. If you do not, then beware of a war with Allah and His Messenger! But if you repent, you may retain your principal—neither inflicting nor suffering harm.” [Quran, 2:278-279]

Assuming responsibility for unpaid rent in the manner outlined above is impermissible under Islamic Law. Risk transfer in exchange for a fixed, non-refundable fee is a form of contractual risk, which is prohibited. [See: Muslim]

The difference between the fixed, non-refundable fee and the rental coverage is interpreted as interest in such an arrangement.

Islamic law provides an alternative through a cooperative solidarity insurance model. [See: Muhammad Zuhayli, Insurance on Debts in Islamic Insurance]

Please consult with a local scholar to explore Shari‘a-compliant alternative coverage options.

And with Allah alone is our success.
[Shaykh] Muhammad Carr
Checked and Approved by Shaykh Faraz Rabbani

Shaykh Muhammad Carr has dedicated his life to studying and transmitting our beautiful deen. His studies have taken him around the globe, where he has benefited from many luminaries. Under the guidance of his teachers – Shaykh Taha Karan, Shaykh Yaseen Abbas, Shaykh Muadh Ali, and many others – Shaykh Muhammad has grown to appreciate the beauty and benefits of diverse scholarship. He completed his memorization of the Qur’an at Dar al-Ulum Zakariyyah in September 1997 and received an Alimiyya Degree in 2006 from DUAI (Darul Ulum al-Arabiyyah al-Islamiyyah). He is also affiliated with Masjid Auwal in Bo Kaap, Cape Town (the oldest mosque in South Africa), where he serves as a co-imam, and Dar Al-Safa, where he has taught since 2018. As a teacher, he imparts the wisdom of our heritage and tradition by opening the door to students. As an imam, he has the unique opportunity to serve his community in daily life.

In addition to his roles as a teacher and imam, Shaykh Muhammad Carr has contributed significantly to the administrative and advisory aspects of Islamic institutions. Since 2023, he has served as the Administrative Director at The Imam Kurani Institute, contributing to the institution’s growth and development. He continues to pursue traditional Islamic Sciences, possessing a keen interest in Islamic Contract Law and Finance. Shaykh Muhammad has been a Shari‘a Board Member for Islamic Asset Management & Insurance Companies since 2001, aligning financial practices with Islamic principles.