In the name of Allah, the Most Compassionate, the Most Merciful.

The Book of Ḥawala (Assignment of Debt)

Ḥawala is the transfer of liability from one party to another. Its practical definition is this: a man is owed a debt by someone, while that debtor in turn is owed an equivalent debt by a third party. The debtor therefore directs the creditor to the third party who owes him a sum equal to the debt. Once the creditor accepts the transfer and agrees that his claim has moved from the first man’s liability to that of the third, the assignor is discharged from the debt and bears no further responsibility. The obligation now rests entirely on the assignee, and the creditor has no recourse against the assignor whatsoever, even if the assignee becomes bankrupt or dies without assets.

An exception exists when the assignor deceived the creditor by transferring the claim to an insolvent or bankrupt person whose insolvency the creditor did not know. In that case the creditor may revert to the original debtor. However, if the creditor was aware of the assignee’s insolvency and still accepted the ḥawala, he has absolutely no right to return to the first debtor under any circumstances.

If a claim is for merchandise, it may not be transferred for payment in gold, silver, or different merchandise; it may only be transferred for goods of the same kind. Likewise, a claim may not be assigned to an absent person, for the creditor does not know that person’s financial condition