In Islamic law, hawala is the contract by which a debtor transfers his debt to a third party who agrees to pay the creditor; the same word also describes informal remittance networks that move value through offsetting balances between brokers.
Four elements: muhil, muhal, muhal alayh and muhal bihi
The muhil is the debtor who transfers, the muhal is the creditor who agrees to be paid elsewhere, the muhal alayh is the person undertaking to pay, and the muhal bihi is the debt itself. The contract forms only when all four are clearly identified.
The hadith behind the contract
According to a hadith reported by al-Bukhari, the Prophet said that delay in payment by a solvent person is injustice and that whoever is referred to a well-off debtor should accept the referral. Jurists derived the permissibility of hawala from it.
Whose consent does the transfer need?
The original debtor's consent is always required. For the creditor, schools differ: the Hanbali school obliges acceptance of a solvent payer, while others require the creditor's agreement. The Hanafi school also requires acceptance by the person who will pay.
Same amount, same currency, same maturity
The transferred debt must be certain and known, and most jurists require it to match, in kind and amount, the debt the payer owes the debtor. Transferring 1,000 in order to collect 1,100 would create a benefit comparable to riba.
End of recourse against the first debtor
Once a hawala is validly concluded, the original debtor is released and the creditor can no longer turn to him. The Hanafi school nevertheless allows recourse if the claim is lost, for example when the payer dies insolvent or denies the debt.
Restricted and absolute hawala
Hanafi jurists distinguish hawala muqayyada, tied to a debt or property the payer holds for the debtor, from hawala mutlaqa, where the payer commits without any link to an existing debt. The latter then looks more like a guarantee.
Cheques, transfers and cards: modern hawalas
Contemporary jurists often analyse a cheque as a hawala instruction addressed to the bank, and a bank transfer as moving a claim from one account to another. This reading helps confirm that no interest is attached to the collection period.
Transfer fees: a paid service, not interest
The intermediary that moves funds may charge fixed or percentage fees for its service. These fees must not vary according to any period of time granted to the client, otherwise they would become a payment for time.
Remittances with currency conversion: exchange first
When a sender pays in euros for delivery in dirhams, there is a currency exchange (sarf) requiring immediate settlement. Standards accept that the exchange is concluded at the counter, the receipt counting as possession, before the converted sum is transferred.
The hawaladar network as hawala in a broad sense
In the informal system money does not travel: brokers keep reciprocal accounts and settle them later through goods, other remittances or bank transfers. Legally, each operation combines agency, lending and debt transfer rather than a single classical contract.
Why authorities monitor informal networks
FATF Recommendation 14 requires money or value transfer services to be licensed or registered and subject to anti-money laundering rules. An unregistered hawaladar exposes the sender to the risk of loss and to prosecution in many countries.
Before handing money to an intermediary
Check that the operator is authorised in your country, that the exchange rate and fees are stated in advance, and that a receipt identifies the beneficiary. A Sharia board can confirm the contract's compliance, but not the correspondent's solvency.
Specialist external source
AAOIFI issues a Sharia standard on hawala setting out the parties, validity conditions and modern applications such as bank transfers and cheques.