In general, hawalah (الحوالة) is an agreement to transfer or assign something to someone else. The subject matter (mahall– محل) of hawalah is either a debt (dayn– دين) or right (haqq– حق). Hawalat-ul dayn (debt transfer– debt assignment) is the process whereby by debt (receivables) gets transferred from the transferor (muheel– المحيل) to the payer (muhaal alaihi– المحال عليه), while hawalat-ul haqq (transfer of right/ assignment of right) involves the replacement of a creditor (da’en– دائن) with another creditor. In the former type of hawala, a debtor (madeen– مدين) is replaced by another debtor; while in the latter, a creditor is replaced by another.

According to Hanafi scholars, hawalat-ul dayn (hawalat al-dayn) divides into two categories:

• Hawalah mutlaqah (الحوالة المطلقة): an unrestricted form of hawalah (unrestricted hawalah) that does not confine or restrict the payer to a specific source of funds for debt repayment.
• Hawalah muqayyadah (الحوالة المقيدة): a restricted form of hawalah (restricted hawalah) in which the final payment must be made out of the funds of the original debtor, whether from a debt others owe him or certain funds that are owned by the transferee/ assignee (al-muhaal ).