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AL-HAWALAH

Literally, hawalah means transfer or change from a locality to another locality or

from a person to another person or from a situation to another situation. Legally, hawalah

is a contract through which a debtor is released from a debt by another person who

becomes responsible for it. Through the transfer of a claim of a debt, the responsibility

for its settlement is shifted from one person to another. Hawalah is similar to the sale of

debt but is not sale, it also resemble kafalah and wakalah. However, it is a unique

contract which has its own distinct features and condition. The three important

participants in a hawalah contract are: the principal debtor, the creditor and the transferee.

When a valid hawalah is concluded, the debt is no longer demanded from the principal

debtor. This is because in hawalah, the debt is transferred from the principal debtor to the

transferee. Furthermore, hawalah establishes a right for the creditor to demand the

settlement of debt from the transferee.

The Prophet p.b.u.h. is reported to have stated: “Procrastination in paying debts

by a wealthy man is injustice. So, if your debt is transferred from your debtor to a

trustworthy rich debtor you should agree.” According to the Hambalis and Zahiris, the

hadith amounts to a binding command and as such it creates an obligation (‫ب‬,-‫)و‬.

Consequently, they argue that the agreement of the creditor and the transferee is not

necessary. They say that for a valid hawalah it is necessary that the principal debtor

should agree with the hawalah. According to the majority the hadith only conveys a

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recommendation and as such amounts only to ‫ب‬23456‫ا‬. The Hanafies argue that hawalah

by transferring the debt to the transferee amounts to appropriating his property and this

should not be done except will his consent. There is no obligation on him unless he

accepts the hawalah. The fact that he owes a debt to the principle debtor does not change

the situation as people differ in their ability to settle their debts. They also argue that the

creditor should also agree with the hawalah. This is because, they say, people differ in

their abilities to settle their debts. Thus the creditors should give his consent. They also

stipulate the consent of the principal debtor.

The Malikis and Shafi’is stipulate the agreement of the principal debtor and the

creditor. They argue that although the hadith conveys a recommendation the agreement

of the transferee is not necessary. It is because, they say, the transferee is under obligation

to settle the debt as the principal debtor has a right to claim from him the debt. According

to them it does no matter whether the principal debtor personally claims his right from

the transferee or he empowers another to claim his right. This, they say, is similar to a

situation where an agent collects the debts on behalf of his principal. These Schools

therefore argue that it is not necessary that the debtor should give his consent. The

creditor, on the other hand, owns the right. His right can not be transferred except with

his consent.

Pillars of Hawalah

According to the Hanafee School the contract of hawalah has two pillars. They

are offer from the principal debtor and acceptance from the creditor and the transferee.

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The majority of the Fiqh Schools say that hawalah has six pillars. They are: the principal

debtor, the creditor, the transferee, the principal debt, the debt owed by the transferee to

the principle debtor and expression which include offer and acceptance.

The Conditions of Hawalah

1. The parties should be competent

2. The parties should agree with the hawalah

3. The acceptance of the creditor and the transferee should be given during the

session of the contract.

4. The subject matter of hawalah should be debt (dain) and not a specific thing

(‘ain).

5. According to the majority of the Fiqh Schools the transferee should owe a debt to

the principal debtor. If the transferee is not indebted to the principal debtor and

agrees to pay to the creditor the contract is changed to kafalah. As in this case the

transferee is paying for the principal debtor. Consequently, all the conditions of a

valid kafalah are applicable. The Hanafees however, do not agree with this

condition.

6. Both the debts should be known.

7. The principal debtor (muhil) should owe a debt to the creditor (muhal). In the

absence of such a debt if the creditor (muhal) is refereed to the transferee, the

contract is not a hawalah but is considered wakalah. In this case the muhal is

collecting the debt on behalf of the muhil.

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 8. According to the Malikees both debts should be identical in quality and quantity.

It is not allowed if one of them is more or less than the other. Otherwise the

contract will not be hawalah but falls within the sale contract where a debt is sold

for another debt. Similarly, hawalah is not valid if the principal debt is payable

instantly and the debt on the transferee is payable at a fixed future.

9. The debts or one of them should not arise from salam contract as the parties

cannot deal with the debt unless they obtain its possession.

Types of Hawalah

According to the Hanafees there are two types of hawalah.

1. Absolute hawalah (mutlaqah): This is a type of hawalah where the contract is

concluded without reference to the debt on the transferee and he accepts the

transfer. The majority argues that the contract is a kafalah and not hawalah.

2. Restricted hawalah (muqayyidah) when a transfer is made with reference to

the debt on the transferee. The majority only recognizes this type of hawalah.

Transfer of Right ( ‫)!ا
ا‬

It refers to the transfer of right from one creditor to another. While in transfer of

debt one debtor replaces another in transfer of right one creditor replaces another. For

instance, a particular seller refers a purchaser to pay the price of the sold item to his (the

seller’s) creditor. It may also happen when a pledgee wants the pledgor to pay the debt to

another person.

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Termination of Hawalah

1. When hawalah is cancelled (faskh) before it becomes effective or executed. In

this case the creditor has the right to make a claim against the principal debtor.

2. The Hanafees argue that hawalah is terminated when the transferee dies or

becomes bankrupt or he refuses the transfer and the creditor has no evidence

against him. They say that hawalah should have secured the right of the creditor

and it is not possible, the contract therefore is cancelled. The majority of the Fiqh

Schools argue that a valid hawalah contract transfers the debt to the transferee.

The debt according to them should never be retransferred to the principal debtor

even if the transferee is dead or bankrupt. According to them the creditor before

giving his consent to the hawalah should have investigated whether the transferee

is bankrupt or not. In this case his position is the same with a person who has

bought a certain property for a price higher than the market price. However, the

Malikees and the Hanbalees argue that if the creditor has stipulated that the

transferee should not be in financial constraints or a bankrupt, and later it is found

that the transferee is a bankrupt, then he can claim his debt from the pricipal

debtor. The Malikees, also say that the debt can be retransferred to the principal

debtor if he has cheated the creditor and transfers the debt to a person who is

bankrupt.

3. The hawalah comes to an end when the transferee pays the debt to the creditor.

4. When the creditor gives the debt as a gift to the transferee and the latter accepts it.

5. When the creditor gives the gift as a charity (sadaqah) to the transferee.

6. When the creditor releases (ibra) the transferee from the debt.

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The Difference between Hawalah and Suftaja

One of the practical advantages of Hawalah is that it enables a debtor to make

payments in another place through his agent or a second person. Its effect is the same as

that of the bill of exchange (Suftaja). Suftaja is a loan of money in order to avoid the risk

of transport. A lends an amount to B in order that he may pay it to him or C in another

place. In hawalah the obligation of B to A is already in existence. In Suftaja, the

obligation of B to A is created on purpose by a payment which A makes to B.

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