Hawalah - Scope of the Standard

Transcription

1. Shari ’ah Standard No. (7): Hawalah Statement of the Standard 1. Scope of the Standard This standard covers Hawalah transactions that involve a change of debtor, i.e. transfer of debt. The scope of this standard does not cover banking remittances except the remittances that take the form of Hawalah (transfer of debt). 2. Definition of Hawalah Hawalah of debt is the transfer of debt from the transferor (Muheel (Muheel)) to the payer ((Muhal Muhal Alaihi Alaihi). ). The transfer of right, on the other hand, is a replacement of a creditor with another creditor. The transfer of debt differ from transfer of right in that in transfer of debt a debtor is replaced by another debtor, whereas in a transfer of right a creditor is replaced by another creditor. 3. Permissibility of Hawalah 3/1 Hawalah is a legitimate and an independent contract made out of courtesy and is not a contract of sale. It is permitted in order to facilitate payments and recovery. 3/2 The acceptance of Hawalah is recommended for the transferee if the potential payer is known to be solvent and a person who honours payments. This is because Hawalah benefits the creditor and gives relief to the debtor. If the financial status and creditworthiness of the potential payer are unknown, then Hawalah becomes Mubah (permissible). 4. Form of a Hawalah Contract 4/1 A contract of Hawalah can be concluded by an offer from the transferor and acceptance from the transferee ((Muhal Muhal)) and the payer in a manner that clearly indicates the intention of the parties to conclude a Hawalah contract and the transfer of the liability or obligation in respect of 176
2. Shari ’ah Standard No. (7): Hawalah a debt from one party to another party. It is not necessary that the word transfer be used. 4/2 Hawalah is a binding contract. Therefore, it is not subject to unilateral termination. 4/3 It is a requirement that a transfer of debt take effect immediately, not to be suspended for a period of time and not to be concluded on a temporary basis or contingent on future events. However, it is permissible to defer payment of the transferred debt until a future specified date. 5. Types of Hawalah and the Applicable Rulings 5/1 Hawalah is divided into restricted and unrestricted Hawalah. 5/1/1 Restricted Hawalah is permissible. It is a transaction where the payer is restricted to settling the amount of the transferred debt from the amount of a financial or tangible asset that belongs to the transferor and is in the possession of the payer. 5/1/2 Unrestricted Hawalah is permissible. It is a kind of transfer of debt in which the transferor is not a creditor to the payer and the payer undertakes to pay the amount of the debt owed by the transferor from his own funds and to have recourse afterwards to the transferor for settlement, provided that the transfer for payment was made on the order of the transferor. 5/1/3 It is permitted to conclude a Hawalah on a spot payment basis. This is a Hawalah in which the debt transferred to the payer becomes payable on the spot, whether the debt has already fallen due and the obligation is then transferred to the payer for immediate settlement, or the transferred debt is yet to fall due and the transferee has required, as a condition for accepting the transfer, that it be paid immediately by virtue of transfer. 5/1/4 It is permissible to conclude a Hawalah contract on a deferred payment basis. This is a Hawalah in which the debt transferred to the payer is to be paid in the future, whether the payment of the debt is not yet due and was transferred as such to the payer, 177
3. Shari ’ah Standard No. (7): Hawalah or the payment of such debt is due but the payer required that it should be transferred for future payment at an agreed date. In the latter case, the payer cannot be asked for payment before the agreed date. 6. Conditions of Hawalah 6/1 The permissibility of Hawalah requires the consent of all parties, namely the transferor, the transferee and the payer. 6/2 The permissibility of a Hawalah requires that the transferor be a debtor to the transferee. A transaction in which a non-debtor transfers another is an agency contract for collection of the debt and not a transfer of debt. 6/3 It is not a condition in a Hawalah that the payer be a debtor to the transferor. If the payer is not a debtor to the transferor, the Hawalah will be an unrestricted Hawalah. [see item 5/1/2] 6/4 It is a condition that all Hawalah parties be legally competent to act independently. 6/5 It is a condition in Hawalah that both the transferred debt and the debt to be used for settlement be known and transferable. 6/6 It is a condition for concluding restricted Hawalah that the transferred debt or the transferred portion of the debt be equal to the debt owed to the transferee in terms of kind, type, quality and amount. However, the transferor may transfer a lesser amount of a debt owed to the transferee to be settled from a larger amount owed by the transferor on condition that the transferee be entitled only to the equivalent amount of his debt. 7. Effect of Hawalah on the Relationship between the Transferor and the Transferee 7/1 A valid Hawalah discharges the transferor from both the debt liability and any claims in respect of it. In other words, the transferee will have no right of recourse against the transferor for payment. However, if 178
4. Shari ’ah Standard No. (7): Hawalah the acceptance of the transfer was based on the condition that the payer must be solvent, then the transferee will have a right of recourse if the payer is not solvent. 7/2 The transferee is entitled to have a right of recourse against the transferor in situations of (I) death of the payer in bankruptcy, (II) liquidation of an Institution that is the payer in the case of bankruptcy before payment of the debt, (III) the payer is declared bankrupt in his lifetime, or he denies concluding the Hawalah contract and has taken a judicial oath to this effect and there is no evidence to prove otherwise and (IV) the Institution that is the payer is declared bankrupt by a court order. 8. Effect of Hawalah on the Relationship between the Transferor and the Payer After the conclusion of a restricted Hawalah, the transferor is no longer entitled to reclaim from the payer an amount transferred to the payer in respect of the debt to be settled, because the right to receive this amount has now passed to the transferee. 9. Effect of Hawalah on the Relationship between the Transferee and the Payer 9/1 The transferee is entitled to claim the amount of the debt assigned to him through Hawalah from the payer in accordance with conditions of Hawalah contract. The payer, on the other hand, is obliged to pay him and has no right to refuse payment. 9/2 The payer takes the place of the transferor in respect to all rights, legal protections and obligations. The transferee in restricted Hawalah takes the place of the transferor in respect to all rights, legal protections and obligations against the payer. 10. Effect of Death and Bankruptcy on a Hawalah Transaction 10/1 A Hawalah shall not be annulled by the death of the transferor or liquidation of a transferor Institution. The transferee is the sole owner of the amount of the debt payable by the payer and, after 179
5. Shari ’ah Standard No. (7): Hawalah a Hawalah transaction, such a debt cannot be included in the assets of the transferor that are available to be distributed, after death or liquidation, among creditors on a pro rata basis. 10/2 A Hawalah transaction shall not be annulled due to the death of the payer or the liquidation of the Institution acting as payer. In these cases, the transferee will have the right of recourse against the estate of the payer for recovery, a personal guarantor, if any, or pre-distribution assets of the liquidation. However, if the payer dies in the state of bankruptcy, then the transferee shall be entitled to have recourse to the transferor. [see item 7/2] 10/3 A Hawalah transaction shall not be annulled due to the death of the transferee and the heirs shall replace the transferee. The Hawalah will also not be void in case of liquidation of a transferee Institution in which case the liquidator takes the place of the Institution for settlement. 11. Termination of a Hawalah Liability A Hawalah liability will come to an end by settlement of the debt or by a mutual agreement to terminate it or by the debt being written-off by the transferee. 12. Modern Applications of Hawalah Rules 12/1 Withdrawals from a current account An issuance of a cheque against a current account is a form of Hawalah if the beneficiary is a creditor of the issuer or the account holder for the amount of the cheque, in which case the issuer, the bank and the beneficiary are the transferor, the payer and the transferee respectively. If the beneficiary is not a creditor to the issuer of the cheque, then this is not a Hawalah transaction because there can be no Hawalah transaction without an existing debt. In the absence of a debt, the transaction becomes an agency contract for recovery of the amount of the debt on behalf of the transferor, which is permissible by Shari’ah. 180
6. Shari ’ah Standard No. (7): Hawalah 12/2 Overdrawing from an account or overdraft If the beneficiary of the amount of a cheque is a creditor to the issuer, then issuing a cheque against the account of the issuer without a balance is unrestricted transfer of debt if the bank accepts the overdraft. If the bank rejects the overdraft, then this is not considered a transfer of debt, in which case the potential beneficiary may have recourse to the issuer. 12/3 Travellers’ cheques The holder of a travellers’ cheque, the value of which has been paid by him to the issuing Institution, is a creditor to such an Institution. If the holder of the travellers’ cheque endorses the cheque in favour of his creditor, it becomes a transfer of debt in favour of a third party against the issuing Institution that is a debtor to the holder of the traveller’s cheque. This is a restricted transfer of debt and the amount of the debt is the value of the cheque for which the Institution received payment. 12/4 Bills of exchange 12/4/1 A bill of exchange is a form of Hawalah if the beneficiary is a creditor to the drawer. The drawer is, in this case, the transferor who gives orders for the paying bank to pay a certain sum of money at a specified date to the defined beneficiary. The party executing payment of such amount of money is the payer whereas the beneficiary, i.e. the holder of the bill, is the transferee. If the beneficiary is not a creditor of the drawer, then the issuance of the bill of exchange becomes an agency contract to recover or collect the amount of the bill of exchange on behalf of the drawer. 12/4/2 In the absence of a debt obligation between the drawer and the paying bank, the issuance of a bill of exchange becomes an unrestricted Hawalah. 181
7. Shari ’ah Standard No. (7): Hawalah 12/5 Endorsement of a negotiable instrument 12/5/1 An endorsement of a negotiable instrument in a manner that transfers title to its value to the beneficiary is a form of Hawalah if the beneficiary is a creditor to the endorser. If the beneficiary is not a creditor to the endorser, the endorsement becomes one of agency contract for collection of the amount of the debt. 12/5/2 An endorsement of a bill of exchange on behalf of a client who requires the Institution to transfer, after collection, the amount of the instrument into his account is not a Hawalah. This is a contract of agency that is permissible with or without consideration. 12/5/3 Subject to item 12/5/1, it is permissible for the first beneficiary from a bill of exchange to endorse it in favour of any other party. The second beneficiary may also endorse such a bill of exchange in favour of a third party and so on, in which case the revolving of endorsements is a form of successive Hawalah which is not objectionable in Shari’ah. 12/5/4 It is not permissible to discount bills of exchange by transferring the ownership of their value, before their due date, to an Institution or others for a discounted immediate payment. This is because the transaction in this manner is a form of Riba. 12/6 Transfer of money (remittances) The request of a customer for the Institution to transfer a certain amount of money in the same currency from his current account to a particular beneficiary is a transfer of debt if the applicant is a debtor to such a beneficiary. The fee that the Institution gains from this transaction is consideration for the delivery of the money and it is not an additional amount gained by the Institution over the amount transferred. However, if a remittance is to take place in a currency different from that presented by the applicant 182
8. Shari ’ah Standard No. (7): Hawalah for the transfer, then the transaction consists of a combination of currency exchange and a transfer of money that is permissible. [see item 2/11 of the Shari’ah Standard on Trading in Currencies] 13. Date of Issuance of the Standard This standard was issued on Rabi’ I, 1423 A.H., corresponding to 16 May 2002 A.D. 183