Hiwalah = derived from the word tahwil which means shifting from one…
= derived from the word tahwil which means shifting from one place to another (intiqal)
According to the AAOIFI Shariah Standard No.7 (item2) :
(transfer of right)
Replacement of a creditor with another creditor
- (transfer of debt from the transferor(muhil) to the prayer(muhal 'alayh))
transfer of the right to demand (the debt) from the debtor to another liable person.
Other Hanafi Scholars
transfer is not limited to the transfer of the right to demand but also includes the transfer of debt.
Majority of Muslim Scholars
transfer of debt from one person to another person.
Legality of Hiwalah
Delinquency of rich debtors is a form of transgression, so if one of you has hos debt transferred to a rich person, let him accept the transfer of debt
consensus among Muslim scholars on its legitimacy
(Ibn Qudamah, 1968, 4:394)
Types of Hiwalah
Hiwalah mutlaqah (unrestricted
transfer of debt in which the transferor is not the creditor to the payer.
payer undertakes to pay the amount of the debt owed by the transferor from his own funds,
have to recourse afterwards to the transferor for settlement provided that the transfer for payment was made on the order of the transferor.
Hiwalah muqayyadah (restricted
payer is restricted to settling the amount of the transferred debt from the amount of a financial or tangible asset that belongs to the transferor and is in the possession of the payer.
Basic Rules and Conditions of Hiwalah
the transferred debt or the transferred portion of the debt must be equal to the debt owed to the transferee in terms of kind, type, quality and amount
the transferor may transfer a lessor amount of debt owed to the transferee, to be settled from a larger amount owed by the transferor on condition that the transferee entitled to the equivalent amount of his debt
The transferor must be the debtor to the transferee. In restricted hiwalah the payer must be the debtor to the transferor
Both the transferred debt and the debt to be used fo the settlement must be known and transferable
All contracting parties must be legally competent to act independently
All relevant parties shall give their consent of the hiwalah agreement
Legal Consequences of Hiwalah
The transferee is entitled to have right of recourse against the transferor in the following situation :
Death of the payer in bankruptcy
Liquidation of an instituition
The payer is declared bankrupt by a court order
Payer denies concluding the hiwalah contract and has taken a judical oath to this effect and there us no evidence to prove otherwise
The transferee is entitled to claim the amount od the debt assigned to him through hiwalah from the payer
A valid hiwalah discharges the transferor from any debt liabilities and any claims in respect of it.
The transferor is no longer entitled to reclaim from the payer (who owed him previously) n amount transferred to the payer in respect of the debt to be settled.
Termination of Hiwalah Contract
Must mutually agree to terminate the contract
The payer settles the debt to the transferee
The payer passes away and the transferee inherits his (the payer) property
The debt has been written off by the transferee