SS 7 · Dealing with debts

SS 7: Hawalah

What this standard is about

The standard covers hawalah transactions in which the debtor changes. A debt is transferred from the original debtor to a new payer. The standard does not cover banking remittances, except those that take the form of hawalah. It distinguishes the transfer of debt (a debtor is replaced) from the transfer of a right (a creditor is replaced).

Why it exists

Hawalah lets a creditor be paid by someone other than the original debtor. It simplifies payments and debt recovery. The standard confirms that hawalah is a standalone contract made as a courtesy. It is not a sale.

The key rules, simply put

Hawalah is a permissible, independent contract. It exists to make payment and recovery easier.
It needs an offer from the transferor (muheel) and acceptance by the transferee (muhal) and the payer (muhal alaihi). The wording must clearly show the intent to transfer the liability.
Once completed, the creditor claims from the new debtor. The original debtor is released.
Accepting hawalah is recommended when the new payer is known to be solvent and reliable. If their financial status is unknown, the transfer is simply permissible.
If the deal keeps the original debtor liable as a backup, it is treated as a guarantee (kafalah), not a transfer. The meaning of the contract matters more than its name.

An everyday example

Sara owes Layla $1,000. Omar owes Sara $1,000 and is known to pay on time. Sara transfers her debt to Omar through hawalah. Layla now collects the $1,000 from Omar, and Sara is released from the debt.

Words to know

Hawalah — the transfer of a debt from one debtor to another.
Muheel — the one transferring the debt.
Muhal alaihi — the new payer who takes on the debt.
Kafalah — a guarantee; one person joining their liability to another's.

Source

AAOIFI Shariah Standard No. 7 — https://islamicmarkets.com/publications/hawalah-scope-of-the-standard