The Hadith Foundation
The Prophet’s hadith is deceptively simple: when a debtor refers you to someone else for collection, follow the referral. The second clause is significant: “delay by the rich is oppression” — establishing that a wealthy debtor who avoids payment is doing wrong, and that the hawala system exists to facilitate legitimate debt collection.
Classical jurists extracted from this hadith:
- Hawala is permissible (the Prophet commanded following the referral)
- The original debtor is released from the obligation upon valid hawala (the creditor’s obligation is now with the new party)
- The creditor cannot refuse a valid hawala from a solvent party
The Modern Hawala Network
The informal hawala or hundi money transfer system operates outside formal banking channels across South Asia, the Middle East, and diaspora communities. A sender gives cash to a hawala broker in London; the broker contacts a counterpart in Karachi; the recipient collects cash from the Karachi broker. The two brokers settle their accounts periodically.
This system — ancient in concept — has attracted regulatory attention post-2001 because it operates with minimal documentation. However, for millions of migrant workers sending remittances home, it is cheaper and faster than formal banking.
Islamic Bank Hawala Applications
Islamic banks use hawala structures for:
- Interbank liquidity: Bank A transfers a debt owed by Customer X to Bank B, which holds the customer’s deposit
- Letter of credit mechanics: The issuing and correspondent bank relationship mirrors hawala
- Islamic clearing systems: AAOIFI Standard 6 governs hawala in Islamic finance contexts
See also: Fiqh Al Kafalah, Fiqh Al Sarf, Fiqh Al Ijarah, Fiqh Al Musharakah, Fiqh Al Riba Al Nasiah