Hawalah (also spelled hawala) is the assignment/ transfer of debt from one party (the assignor/ transferor or in Arabic al-muheel) to another party (the payer or in Arabic al-muhal alaihi). Hawalah could also refer to the assignment/ transfer of right where a creditor is replaced with another creditor. The former form of hawalah (debt transfer / debt assignment or in Arabic hawalat-ul dayn) differs from the latter (right transfer or in Arabic hawalat-ul haqq) in that in the former a debtor is replaced with another debtor, while the latter involves the replacement of a creditor with another creditor. The contract of hawalah is not a contract of sale (ba’i), as it is used to facilitate payments and debt recovery. The validity or permissibility of hawalah depends on meeting the following conditions:

1. The consent of all parties involved: the transferor/ assignor (al-muheel), the transferee/ assignee (al-muhal), and the payer (al-muhal alaihi).
2. The legal capability of all hawalah parties to act freely.
3. The transferor should be a debtor to the transferee. If not, the contract turns into an agency contract for debt collection, rather than a debt transfer.
4. Both the transferred debt and the debt to be used for settlement should be quantifiable and transferable.
5. It is not a condition that the payer be a debtor to the assignor/ transferor, in which case the hawalah becomes an unrestricted hawalah (in Arabic hawalah ghair muqayyadah).
6. In case of restricted hawalah, the transferred debt, whether in whole or in part, should be equal to the debt owed to the assignee/ transferee in terms of kind, type, quality and amount. Nevertheless, the transferor may transfer a smaller 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.