SS 59 · Dealing with debts

SS 59: Sale of Debt

What this standard is about

A debt is something owed: money, goods, or a service. This standard, issued in December 2018, covers selling a debt in two situations: to the debtor himself, and to a third party. The core question is when a debt can change hands without the deal becoming interest (riba) in disguise.

Classical scholars are unanimous that selling a money debt at a discount is forbidden. A debt of $10,000 in money is simply money, and exchanging money for money at anything other than face value is riba.

Why it exists

Debts sit at the heart of modern finance: loans, receivables, commercial papers, bonds, and sukuk that represent debts. Banks constantly ask what they may do with these: sell them, discount them, bundle them into securities. Without clear rules, riba creeps in through discounted debt trading. This standard draws firm lines while leaving room for legitimate activity such as debt assignment and asset-backed securities.

The key rules, simply put

A debt is an asset owed. It can be money, a commodity, or a service, and it can arise from a loan, a sale, or from misconduct or negligence.
Selling a money debt to a third party for money, especially at a discount, is prohibited. Transferring a debt through hawalah (assignment) is different and is allowed.
A money debt may be sold to a third party for goods delivered immediately on the spot, or for a clearly identified service. It may not be sold for goods delivered later or for a vague future benefit.
A creditor may settle a debt with the debtor himself at face value, provided no interest results: the debt may not be swapped for a larger new debt, the amount may not be raised in exchange for more time, and no 'inah tricks are allowed.
Discounting commercial papers (selling them below face value) is not allowed.
Bonds may not be traded at all. Sukuk that represent debts, such as salam sukuk and murabaha sukuk, may not be traded for cash.
When a debt is mixed with other assets, such as shares of an operating company, the shares can be traded normally as long as the debt comes from genuine business activity and does not make up the entire asset base.
Factoring, the business of buying invoices at a discount, is not allowed except against goods delivered on the spot or clearly identified services.

An everyday example

A bank is owed $10,000 under a loan. Selling that receivable to an investor for $9,000 cash is forbidden, because it is riba. The bank may instead assign the debt to another party through hawalah, or sell it for $10,000 worth of goods handed over immediately.

Words to know

Bay' al-dayn — sale of debt.
Hawalah — assignment or transfer of a debt to another party.
Riba — interest; any guaranteed extra charged on a loan. Forbidden in Islam.
'Inah — a buyback trick used to disguise an interest-bearing loan.
Factoring — buying trade invoices at a discount.
Salam — a contract where the price is paid in advance for goods delivered later.

Source

AAOIFI Shariah Standard No. 59 — clause readings in the State Bank of Pakistan's Compendium of AAOIFI Shariah Standards (updated 31 Jul 2025) — https://www.sbp.org.pk/assets/document/publications/Compendium.pdf
PIDM Muzakarah deck quoting clauses 8/1 and 8/2 — https://www.pidm.gov.my/getContentAsset/061df5b4-052e-4bff-b29c-62343bb55780/188ea75b-0100-4438-8f97-d79a01d9e0cd/PIDM-Muzakarah-Session-2-(Presenter)-Full-Transfer-Mechanism-Shariah-Issues-and-Solutions.pdf?language=en (no free full text of the standard is published; AAOIFI sells the complete text)