With respect to debts, hawala refers to the transfer of debt from one party (the transferor, or muheel) to another (the payer or muhal alaihi) to the benefit and order of the creditor (the muhal).

As far as rights are concerned, hawala involves the transfer of the right to claim from one creditor to another. The new creditor replaces the original one, and therefore the debtor owes the new creditor, and is no more indebted to the original creditor.

In this sense, the transfer of debt differs from the transfer of right in that in the former a debtor is replaced by another debtor, whilst in the latter a creditor is replaced by another creditor.

Hawala is a binding contract, i.e., it cannot be terminated unilaterally, but rather both parties have to agree termination in order for it to be effective. Shari’a requires that a transfer of debt come into force immediately. This means that it neither can be suspended for a period of time nor be contingent on a future occurring. Notwithstanding, it is permissible to defer payment of a transferred debt to a preset future date.

Hawala is typically classified as restricted hawala (hawala muqayyada) and unrestricted hawala (hawala mutlaqa).