In general, hiwalah (الحوالة) is an agreement to transfer or assign something to someone else. The subject matter (mahall– محل) of hiwalah is either a debt (dayn– دين) or right (haqq– حق). Hiwalat-ul dayn (debt transfer– debt assignment) is the process whereby by debt (receivables) gets transferred from the assignor/ transferor (muheel– المحيل) to the payer (muhaal alaihi– المحال عليه), while hiwalat-ul haqq (transfer of right) involves the replacement of a creditor (da’en– دائن) with another creditor. In the former type of hawala, a debtor (madeen– مدين) is replaced by another debtor; while in the latter, a creditor is replaced by another.
According to Hanafi scholars, hiwalat-ul dayn (hiwalat al-dayn) divides into two categories:
- Hiwalah mutlaqah (الحوالة المطلقة): an unrestricted form of hiwalah (unrestricted hiwalah) that does not confine or restrict the payer to a specific source of funds for debt repayment.
- Hiwalah muqayyadah (الحوالة المقيدة): a restricted form of hiwalah (restricted hiwalah) in which the final payment must be made out of the funds of the original debtor, whether from a debt others owe him or certain funds that are owned by the transferee (al-muhaal ).
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