Fiqh al-Hawala wal-Hawalat al-Dayn — Debt Assignment in Islamic Law: The Hawala Contract (Transfer of a Debt From One Debtor to Another), Its Classical Conditions, How Modern Hawala Remittance Networks Operate, and How Islamic Banks Use Hawala Structures for International Money Transfers Without Violating Riba Rules

Fiqh al-Hawala wal-Hawalat al-Dayn (فِقهُ الحَوَالَةِ وَحَوَالَاتِ الدَّيْن — Jurisprudence of Debt Transfer; *hawala*: transfer, assignment; from *h-w-l*: to change, to transform, to transfer; the classical hawala contract: A [the muhil, the one who assigns] owes money to B [the muhal, the creditor]; C [the muhal 'alayh, the transferee] owes money to A; A assigns the debt to C: now C must pay B; B may no longer pursue A for the debt — the obligation has been novated to C; the foundational hadith: Bukhari and Muslim: 'The Prophet said: Delay [in payment] by a wealthy person is zulm [injustice]; and if one of you is assigned [uhila] to a wealthy person [muhal 'alayh], let him follow up [with the transferee]'; this hadith establishes both the prohibition on wealthy debtors' delay and the permissibility of hawala; classical conditions: [1] the debt being transferred must exist and be established; [2] the two debts [A owes B; C owes A] must be of the same kind and amount [according to some schools]; [3] the muhal 'alayh [C] must accept [consent to being transferred the obligation]; [4] the consent of the creditor [B] — opinions vary: Maliki requires it; Hanbali does not; Hanafi and Shafi'i: not required if the transferee is solvent; school differences: Maliki: hawala terminates A's obligation absolutely [once transferred, B cannot return to A even if C defaults]; Hanafi and Shafi'i: if C defaults or becomes insolvent, B may return to A [conditional novation]; Hanbali: absolute termination; the modern hawala remittance system: the traditional hawala network operates on a completely different basis from the classical fiqh contract; the modern system: [1] a customer [A] in country X gives cash to a hawala broker [H1] and requests transfer to recipient [B] in country Y; [2] H1 contacts his corresponding broker [H2] in country Y by phone/message; [3] H2 delivers cash to B; [4] H1 and H2 settle their running accounts periodically [through reverse flows, gold, goods trade, or conventional transfer]; the modern system's shariah analysis: the modern hawala broker relationship is not the classical debt-transfer but rather a combination of wakala [agency] and qard [loan]; H1 acts as agent of A to effect the transfer; H2 makes a short-term loan to B against the promise of reimbursement from H1; the AAOIFI Standard 2 on hawala: distinguishes hawala al-dayn [classical debt transfer] from hawala al-wajh [guarantee]; the Islamic bank's use of hawala for international money transfer: Islamic banks use the wakala structure combined with correspondence relationships to transfer funds internationally; fees are charged for the service [not interest on the money transferred]; the regulatory challenge: the modern hawala system operates largely informally; FATF [Financial Action Task Force] has flagged informal hawala as a potential money-laundering risk; many jurisdictions require registration; the tension between accessibility [hawala serves migrant communities without bank access] and regulation is ongoing) is both a classical debt instrument and the framework for the world's largest informal money transfer network.