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Debt Transfer (Ahadith 1981 – 1982)


Kitaab-ul-Hiwaalah [Book of Debt Transfer] starts today.

Volume 3, Book 37, Number 486 :
Narrated by Abu Huraira (radiallaahu `anhu)
The Prophet (sallallaahu `alayhi wasallam) said, “Procrastination (delay) in paying debts by a wealthy man is injustice. So, if your debt is transferred from your debtor to a rich debtor, you should agree.”

Volume 3, Book 37, Number 487 :
Narrated by Abu Huraira (radiallaahu `anhu)
The Prophet (sallallaahu `alayhi wasallam) said, “Procrastination (delay) in paying debts by a wealthy person is injustice. So, if your debt is transferred from your debtor to a rich debtor, you should agree.”

You should agree because the rich debtor will be able to pay you earlier inshaAllah, and that’s good for you.

The word hiwalah is derived from tahwil, which conveys the meaning of shifting a thing from one place to another place. In the language of law, it means “shifting or assignment of debt from the liability of the original debtor to the liability of another person”. It can also be defined as substitution of one obligor for another with the agreement of the creditor.

The word Hiwalah is defined by Accounting and Auditing Organization For Islamic Financial Institutions (AAOIFI) as ‘a transfer of debt from the transferor (muhil) to the payer (muhal alayh)’. The Majallah (Art.673) defines it as “to make a transfer from one debtor account to the debtor account of another”. Thus, hiwalah is an agreement by which a debtor is freed from a debt by another becoming responsible for it.

The purpose of hiwalah is the payment of debt through the assignment of a claim. As a consequence, once the transferee (new debtor) has accepted the transfer of debt, the original debtor (transferor) is released from any obligation of the debt (and creditor has no recourse to him anymore). The creditor can now claim his debt only from the transferee. The transfer of debt is differ from transfer of right in that in transfer of debt, a debtor is replaced by another debtor, whereas in a transfer of right is a replacement of a creditor with another creditor. The meaning of hiwalah can be understood by the following illustrations:

1. A is indebted to B and has claim against C. He can settle his debt by transferring his claim against C to the benefit of B.

2. A has debt owing to him from B and owes to C. C instead of realizing from A and A his debt from B, can realize it from B through the contract of hiwalah. In this case, debtor B is substituted for debtor A with the agreement of C. A is discharged.

The debtor who transfers debt is called muhil (debtor-assignor), the muhal (creditor-assignee) and the new debtor to whom transfer is made, muhal ‘alayh (transferee).

Taken from: Islamic Finance News

Interesting stuff, right? So much for avoiding business subjects at school. :|

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