Hawalah
Hawalah is the classical Islamic contract for transferring a debt from one debtor to another: the original debtor's obligation is discharged and the creditor collects from the new party instead.
Also called: hawalah (debt transfer) · debt transfer · transfer of debt · hawala in Islamic law
Three parties are involved: the original debtor (muhil), the creditor (muhal) and the party who takes over the obligation (muhal 'alayh), usually someone who owes the original debtor money. Once a valid hawalah is concluded, the creditor's claim passes to the new party. Jurists differ on details such as whose consent is needed and whether the creditor can return to the original debtor if the new one fails to pay.
The concept underpins how Islamic finance analyses bills of exchange, cheques, some factoring and payment arrangements, and the settlement of debts through set-off.
Classical hawalah is a debt-transfer contract. The informal remittance networks known as hawala share the name and the underlying idea of moving obligations rather than money, but they are a different subject — see What is Hawala? (Part II).
In practice
Hawalah the contract is not the same as hawala the remittance system. A hawala network is not automatically Sharia-compliant, and it is not automatically illegal or unregulated either — in most countries it is a money-transmission activity that needs a licence or registration.
Example
A owes B US$5,000, and C owes A US$5,000. With the parties' agreement, A transfers B's claim to C. B now collects US$5,000 from C, and A's debt to B and C's debt to A are both discharged.
Commonly confused with
| Term | How it differs |
|---|---|
| Hawala (remittance network) | Modern hawala is a broker network that settles cross-border payments without moving money directly. Classical hawalah is a contract of debt transfer between identified parties. |
See also
- QardQard is a loan of fungible property — usually money — that the borrower must repay with its equivalent, with no stipulated benefit to the lender. Any benefit the lender requires as a condition of lending raises a riba problem.
- WakalahWakalah is an agency contract in which one party, the principal, appoints another, the agent or wakil, to act on its behalf — buying, selling, investing or managing — usually for a fee.
- RemittanceA remittance is a cross-border transfer sent by one individual to another — typically a migrant worker sending money home to family. It is distinct from a commercial payment between businesses, and regulators define it more narrowly than everyday speech does.
- Fiqh al-Mu'amalatFiqh al-mu'amalat is the branch of Islamic jurisprudence that governs transactions between people: sales, leases, partnerships, loans, agency, guarantees, property and the other contracts on which Islamic finance is built.