Hawala Contract

Literally hawala means transfer or change, from a locality to another locality, or from a person to person. Legally hawala is a contract through which a debtor is released from a debt by another person who becomes responsible for it. Through the transfer of a claim of debt the responsibility for its settlement is shifted from one party to another.

Definition and Sharia'a compliance aspects of the Hawala contract are discussed. Where is Hawala used? Why is Hawala used? How does Hawala compare with the Kafala contract? The role of collateral in Islamic finance is also discussed.