Before approaching anything, there are three fundamental points; a) Definition, b) Subject matter, and, c) Aims and Objectives
We shall discuss the literal definitions / subject matters of different subjects (Wakaalah / Kafaalah / Hawaalah / Ijaarah and Accidents) but in order to invoke the mercy of Allah Ta’ala in our discourses (disseminating knowledge, seeking knowledge and practising upon it), all our discourses are common in their aims and objectives, and that is, the pleasure of Allah Ta’ala. The driving force behind doing anything correct is the pleasure of Allah Ta’ala.
Say verily my prayers, my sacrifices, my life and my death are all for Allah the Rabb of the worlds, no deity with him, and for that I have been commanded and I am the first one of the Muslims
All verbal, physical and monetary Ibaadat belongs to Allah Ta’ala. Peace be upon you, Oh Rasulullah (Sallallaahu Alayhi Wasallam) and the Mercy of Allah and His blessings. Peace be upon us and upon the pious servants of Allah. I testify that there is no God but Allah, and I testify that Muhammad (Sallallaahu Alayhi Wasallam) is the servant and Messenger of Allah.
a) Literal Definition
Hawaalah is an Arabic word from the scale of If’aal.
It means to transfer. (Badaai’e)
b) Shar’ee Definition
‘To transfer the debt from the debtor to the Muhtaal Alayhi (Haashiya Hidaaya).’ (Hashiya Hidaaya)
‘Whosoever (creditor) is handed over to a rich person, should comply.’ (Nasbur Raaya)
In view of the above, the Fuqahaa have ruled:
Muheel - the person who transfers his debt (the debtor)
Muhtaal – the creditor
Muhtaal Alayhi - the person taking the responsibility
Muhtaal bihi – the debt
Example, Zayd owes Umar R1000. Zayd requests Bakr to pay the debt for him and he (Bakr) accepts the responsibility. Zayd is the Muheel, Umar is Muhtaal, Bakr is Muhtaal Alayhi and the R1000 is Muhtaal bihi
3) The need for Hawaalah
Shari’ah has granted permission to a person to take a loan in order to relieve him from his obligation. In many instances, the creditor may give a loan on condition the borrower offers a guarantor, that is Kafaalat. Similarly, a person is unable to pay a debt and wishes to transfer the debt, that is Hawaalah. Therefore, Shari’ah has permitted Hawaalah.
Procedure of Contract
‘Proposal and acceptance – proposal from Muheel and acceptance from Muhtaal and Muhtaal Alayhi’ (Badaai’e)
Generally, in Fiqh, the Fuqahaa discuss the Ahliyyah (qualifications) to carry out any particular act and generally, there are four qualifications: a) Muslim, b) Free, c) Sane, d) Adult
The Muheel, Muhtaal and Muhtaal Alayhi all must be free, sane and adult. Being a Muslim is not a condition. The Muhtaal bihi (debt) must be known. Ambiguity will not be accepted as in Kafaalat. (Commercial Law of Islam – Mawlana Mujeebullah Nadwi part 4)
Difference between Kafaalat and Hawaalah
In Kafaalat, the Makfool Anhu will not be absolved from the responsibility. The Kafeel can claim from both the Makfool Anhu and from the Kafeel but in Hawaalah, the Muheel will be absolved. There will be no claims against him. The creditor may claim only from the Muhtaal Alayhi.
However, if the Makflool Alayhi denies assuming the responsibility or he dies as an insolvent person, then the responsibility will return to the Muheel. According to Imaam Abu Yusuf and Imaam Muhammad (Rahmallaahi Alayhim), if he is declared insolvent by the Qadhi, then too the responsibility will return to the Muheel.
Consequences of Hawaalah
1. After Hawaalah is made, the Muhtaal (creditor) can only claim from the Muhtaal Alayhi (third person). He has no claim over the Muheel (original debtor).
2. Once the debt is paid, the Muhtaal alayhi can claim his money from the Muheel. If the Muheel dies before repaying him, then he can claim from his estate. In such a situation, the Muhtaal Alayhi will be paid before the heirs and other creditors.
3. If someone has some money kept in some person’s safekeeping, and he makes that person Muhtaal Alayhi of some debt of his, i.e. he transfers his debt on to him, then the Muhtaal Alayhi after paying the debt can reimburse himself out of the money in his safekeeping. If before payment is made to the Muhtaal, the money in his safekeeping gets lost, then the Hawaalah becomes Baatil, and the Muhtaal can again claim from the Muheel.
4. Zayd owes money to Umar, and Zayd has a claim from Bakr. Zaid tells Bakr to give that to Umar. If Bakr accepts, he is the Muhtaal Alayhi. Now he is obliged to pay Zayd his money. If he fails to do so, he can be sued in court.
5. The Muhtaal Alayhi cannot claim the money in question from the Muheel before he pays the debt.
6. The Muhtaal Alayhi can only claim from the Muheel whatever he had agreed to give in payment. If he is given something else of his own accord, then he cannot claim that from the Muheel. For example, the Muheel asked him to pay silver on his behalf. The Muhtaal Alayhi, instead of silver, gave gold. If the Muhtaal Alayhi claims the gold from the Muheel, it is not permissible. He can only ask him silver. The same principle applies to other items.
Hawaalah in Foreign Exchange
Hawaalah in money or commodity is permissible. But in this process, the common practise of discounting bills of exchange or of charging commission on changing of gold currency is not permissible in Shari’ah, and in reality both these things constitute interest. If without any discounting, a sum of money or some commodity is transferred to some other country by means of a Hawaalah, this is valid. In this Hawaalah, it is not necessary for the Muhtaal Alayhi to be present at the time. His permission can be obtained later. (Commercial Law of Islam – Mawlana Mujeebullah Nadwi part 4)
Saftajah (Letter of Credit)
Saftajah is Makrooh. This means a loan from which the lender takes the benefit of saving himself from all the dangers of the road, and Rasulullah (Sallallaahu Alayhi Wasallam) has prohibited taking benefit from a loan in this manner.
According to the Hanafi Madhab, it is not permissible. But according to Imaam Maaliki, it is permissible. Hadhrat Abdullah ibn Zubayr (Radhiallaahu Anhu) used to take money from people in Makkah and would write to Mus’ab ibn Zayd (Radhiallaahu Anhu) in Iraq telling him to pay the sum in question, and people would collect it from him there. (Ibid)
The two sons of Hadhrat Umar – Abdullah and Ubaydullah (Radhiallaahu Anhum) went to Iraq with an army. On their return, the Governor of Basra, Hadhrat Abu Musa Ashari (Radhiallaahu Anhu) said that I have a sum from the Baytul Maal with me, which I am giving to you in the form of a loan. You use it to buy goods in Iraq and then sell them in Makkah. Whatever profit you make you keep, and the original amount you give to the Amirul Mu’mineen. So Hadhrat Abu Musa gave them the money and at the same time wrote a letter saying that the sum in question should be collected from them. They arrived in Madinah, and after selling the goods, kept the profits and presented themselves before Hadhrat Umar (Radhiallaahu Anhu) and handed over to him the original sum. Hadhrat Umar (Radhiallaahu Anhu) asked, ‘Did everyone in the army get a loan like this?’ They both said, ‘No’. Then Hadhrat Umar (Radhiallaahu Anhu) said, ‘Because you are the sons of the Ameerul Mu’mineen, you were given this loan. Hadhrat Abdullah saidn nothing.
But Hadhrat Ubaydullah (Radhiallaahu Anhu) asked, ‘If the money was lost or a loss was made on it, then would we have been liable for compensation?’ Hadhrat Umar (Radhiallaahu Anhu) said, ‘Never mind that. You should put the whole amount into the Baytul Maal’. One person in the assembly addressed the Ameerul Mu’mineen and said that if you make it Mudhaarabah, it would be better.’ Hadhrat Umar (Radhiallaahu Anhu) agreed to this and put half the profit into the Baytul Maal and ha;f of it he gave back to his sons.
Imaam Bayhaqi quotes the opinions of Hadhrat Ali and Hadhrat ibn Abbaas (Radhiallaahu Anhum) that they did not see any objection in sending money by means of Safatij (letter of credit).
Ibn Abi Shaybah in his Musannaf quotes this opinion of Hadhrat Ali (Radhiallaahu Anhu), ‘And Ali (Radhiallaahu Anhu) said there is no harm in giving money in Madina and collecting it in Africa.’ (Commercial Law of Islam – Mawlana Mujeebullah Nadwi part 4)
The Muhtaal (creditor) cannot claim the debt from the Muheel (debtor), but if the creditor denies undertaking the responsibility of paying the debt and there is no proof against him or he dies as an insolvent person, then the debtor may claim from the debtor.
If there is money in the Muhtaal Alayhi’s estate, then his estate will have to pay the debt. (Hidaaya)
1. The discussion is based on the broad principles of Hawaalah. We have not discussed the Juziyyaat (branches) flowing from the broad principles.
2. We have limited the discussion on Shar’ee issues and did not engage in the secular aspects of Hawaalah as we need to study the secular issues before issuing Shar’ee rulings on them.
and Allah Ta’ala Knows Best
Mufti Ebrahim Desai
Last modified: May 05, 2009