Is having a guarantor in Islamic finance merely a formality?

No.

Key points

• A guarantor can assume a real obligation under the guarantee agreement if the original client fails to fulfill their obligations.

• Before guaranteeing someone, know the amount, the duration, when the bank has the right to seek recourse against you, and whether the guarantee covers the entire debt or only a portion of it.

• Don't sign as a guarantor on paper you haven't read.

Source

• AAOIFI — Sharia Standards