1.0 .Transfer of Debt (Al Hiwalah)
Literally means transfer or change from
one locality to another or from a person to another, or from a situation to
another.
Legally, means a contract through which
a debtor is released from a debt by another person who become responsible for
it
Hiwalah is similar to the sale of debt
but is not sale, it also resemble kafalah and wakalah while Hiwalah is a unique
contract which has its own distinct features and conditions
Three participants in Hiwalah contract
are:
·
The principle debtor
·
The creditor and
·
The transferee
Definition of Hiwala by the Malaysian
Securities Commission Shariah Advisory Council is “debt assignment contract”.
The Accounting and Auditing Organization for Islamic Financial Institutions
(AAOIFI) states that this is permitted in order to facilitate payments and
recovery. It is a legitimate and independent contract made out of courtesy and
is not a contract of sale. For an assignment of debt, Hiwala is the Shariah
instrument. Literally it means “turn”, in Islamic law the transference of a
debt from one person to another
However, similar conclusion reached by
Fakihah Azahari (فاقاه الازهر), the assignment of
debt is a situation where an outstanding balance facility is assigned to a
third party who has agreed to continue with the payment of the monthly
installment under the customer’s account from the date of the assignment of
debt until the expiry of the facility tenor. A customer who opts to negotiate
for settlement of his obligations in this way not only assigns his debts to a
third party with the financial capacity to continue with the monthly payments
but also releases himself from his financial obligations towards the financier.
The third party is usually one with a close relationship with the customer such
as from father to son or from a company to its director or shareholder. This
third party would be in a position to take over the debt due to the proximity
of the contractual duties, fiduciary duties or relationship. Since the accounts
have been serviced for a few years, the third party would be taking over an
account that has an outstanding facility reduced from the original facility.
Where the facility is for purchase of an asset, the third party would be taking
over a reduced debt and acquisition of asset at a price below the market price.
These are factors that may persuade the third party to consider taking over the
assigned debt.
