With respect to debts (dain/ dayn or duyun), hawalah (in Arabic script حوالة) refers to the transfer/ assignment of debt from one party (the transferor/ assignor, 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, hawalah involves the transfer/ assignment of the right (haqq) 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/ assignment 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.

Hawalah is a binding contract (aqd mulzim), 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 conditional for a period of time nor be contingent on a future occurring. Notwithstanding, it is permissible to defer payment of a transferred/ assigned debt to a preset future date.

Hawalah is typically classified as restricted hawalah and unrestricted hawalah.