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Saturday, February 27, 2010

The criteria of the debt that can be the subject matter of debt transfer (hiwalah) and debt sale (bai’al-dayn) in Islamic commercial law

Hiwalah or hawalah is an effective mode for the security of debts. The word hiwalah is derived from tahwil, which conveys the meaning of shifting a thing from one place to another place. In the language of law, it means “shifting or assignment of debt from the liability of the original debtor to the liability of another person”. It can also be defined as substitution of one obligor for another with the agreement of the creditor.

The word Hiwalah is defined by Accounting and Auditing Organization For Islamic Financial Institutions (AAOIFI) as ‘a transfer of debt from the transferor (muhil) to the payer (muhal alayh)’[1]. The Majallah (Art.673) defines it as “to make a transfer from one debtor account to the debtor account of another”. Thus, hiwalah is an agreement by which a debtor is freed from a debt by another becoming responsible for it. 

The purpose of hiwalah is the payment of debt through the assignment of a claim. As a consequence, once the transferee (new debtor) has accepted the transfer of debt, the original debtor (transferor) is released from any obligation of the debt (and creditor has no recourse to him anymore). The creditor can now claim his debt only from the transferee. The transfer of debt is differ from transfer of right in that in transfer of debt, a debtor is replaced by another debtor, whereas in a transfer of right is a replacement of a creditor with another creditor. The meaning of hiwalah can be understood by the following illustrations:

1.      A is indebted to B and has claim against C. He can settle his debt by transferring his claim against C to the benefit of B.

2.      A has debt owing to him from B and owes to C. C instead of realizing from A and A his debt from B, can realize it from B through the contract of hiwalah. In this case, debtor B is substituted for debtor A with the agreement of C. A is discharged.

The debtor who transfers debt is called muhil (debtor-assignor), the muhal (creditor-assignee) and the new debtor to whom transfer is made, muhal ‘alayh (transferee).

The principle application of hiwalah can be of use in commercial-cum-banking transactions such as in the modern day negotiability of loan instruments. Hiwalah has the ingredients of guarantee. An instrument is also negotiated for the purpose of guaranteeing or securing the payment of the loan due on a promissory note, a cheque or a bill of exchange. As such, when A, a drawer, draws a bill upon B ordering him to pay C, he is in fact guarantees him i.e. C, the payment of his debt due on A. Similarly, when A, a holder of instruments negotiates it to B, he secures the payment of debt due on the bill. An acceptor of an instrument after accepting it becomes primarily liable while a drawer’s liability becomes secondary and conditional. In the same way a transferee in a contract of hiwalah become primarily liable.

Malikis and Shafi’is stipulated three conditions for the item transferred to be satisfied; (i) the debt must be matured, (ii) the debt must be equal to the debt owed to the transferor by transferee in kind and amount, and (iii) the two debts must not be foodstuffs that are object of salam (spot payment from deferred delivery) sale. Basically, the prerequisite for the transferred item must be in the form of debt which is established on the dhimmah (obligation) of the transferor. If the transferred item is not a debt, then, such contract becomes contract of agency. This implies that the transferred debt cannot be in the form of fungible item because those cannot be established as liabilities. In addition, the binding debt must be considered as a contractual obligation. Other conditions would be the debt to be used for settlement must be known to the contracting parties. Shafi’is school also allowed the transfer of debt that will ultimately become binding e.g. the liability for a price that will take effect once a contract option is exercised or expired. Hanafis, however, do not make it condition that the transferee must be indebted to the transferor prior to the contracts.

According to Imam Ahmad bin Hanbal and Imam Shafi’i, when the new debtor is solvent, the creditor/assignee has no recourse what so ever against the creditor/assignor in the event that the debt is not settled by the substituted debtor. Thus, the discharge of the debtor/assignor is total and irrevocable unless his guarantee was obtained especially for the case of non-payment by the substituted debtor. Thus, the discharge of the debtor/assignor is total and irrevocable unless his guarantee was obtained especially for the case of non-payment by the substituted debtor. This is substantially the opinion of the Maliki, with the difference that for Maliki, the creditor/assignee has the right of recourse against the debtor/assignor in the case of misrepresentation in assignment to the new debtor who has already bankrupt before hiwalah was concluded. For the Hanafis, hiwalah, in principle discharges the debtor-assignor with the exception that the creditor/assignee has a right of recourse against him in the event that his claim is in danger of failing either for the reason that the new debtor is insolvent or because he renounces the existence of hiwalah and the creditor has no proof thereof.

Dayn or debt is basically a liability of a person to pay certain amount of money or in kind and the obligation will resides until it is completely discharged. Dayn is more general than qard (loan) whereby, in qard contract, creditor lends money or item to the debtor on a condition that the debtor will return the value of the money to the lender at a specific time. Thus, this is the source for dayn to arise. Therefore, the qard is only a type of dayn. On the other hand, bai’ al-dayn (debt trading) in Islamic commercial law point of view is referring to the principle of selling the dayn which results from mu’awadhat maliyyah contracts (exchange contracts) such as murabahah (cost plus), bai bithaman ajil (cost plus specified mark-up), ijarah (leasing), istisna’ (staggered payments for deferred delivery) and others.

The bai’ dayn principle has always been a point of contention among past and present jurists. However, there is no general nas or consensus (ijma’) among those who forbid it. In general, the majority of Islamic jurists are unanimous in allowing the activity of selling debts to the debtor. They only differ in opinion about selling the debt to a third party for the reason that the seller will not be able to deliver the sold item to the buyer. Zahiris who maintained that the sale of debt is disallowed to third party or even to the debtor himself. Hanafis also disallowed bai’ al-dayn to the third party regardless of the types of debts. This is because the debt is in the form of mal hukmi (intangible assets) and the debt buyer takes on a great risk because he cannot own the item bought and the seller cannot deliver the item sold. 

Ibn al-Qayyim, a Hanbali jurists confirmed that bai’ al-dayn is completely in agreement with Shariah and there was no general nas or ijmak that prohibited it. The Malikis also shared the same view with Ibn al-Qayyim except that Malikis imposed some conditions to be fulfilled.

The Maliki mazhab allowed debt selling to a third party subject to certain conditions to facilitate the use of this principle in the market. The conditions are as follows:

1.      Expediting the payment of purchase.
2.      The debtor is present at the point of sale.
3.      The debtor confirms the debt.
4.      The debtor belongs to the group that is bound by law so that he is able to redeem his debt.
5.      Payment is not of the same type of dayn, and if it is so, the rate should be the same to avoid riba.
6.      The debt cannot be created from the sale of currency (gold and silver) to be delivered in the future.
7.      The dayn should be goods that are saleable, even before they are received. This is to ensure that the dayn is not of the food type which cannot be traded before the occurrence of qabadh.
8.      There should be no enmity between buyer and seller, which can create difficulties to the madin (debtor).

The conditions set by the Maliki mazhab can be divided into three categories:

1.      To protect the rights of the debt buyer.
2.      To avoid debt selling before qabadh.
3.      To avoid riba.

Contrary to that, Shafi’is maintain that the sale of a debt is allowed if it is confirmed debt (dayn mustaqir) and was sold in exchange for ‘ayn (goods) that must be delivered immediately. When the debt was sold, it should be paid in cash or tangible assets as agreed.

The clash of opinions on bai’ dayn among the past Islamic jurists centred on the ability of the seller to deliver the items sold. This was stated by Ibn Taimiyyah himself and was also based on statements made in the great books of the four mazhab.

The argument of the Islamic jurists that prohibited bai’ dayn to a third party for fear that the buyer will have to bear great risks (Hanafi mazhab) has some truth in it. This is especially true if there is an absence of supervision and control. Therefore, the conditions set by the Maliki mazhab and the fears of risks by the Hanafi mazhab can be overcome by regulation and surveillance. Thus, it can be concluded that although there are differences in opinions on bai’ dayn among the Hanafi and Maliki mazhab, there is a convergence point which states that bai’ dayn can be used if there is a regulatory system that protects the buyer’s maslahah in an economic system.

The fifth condition set by Maliki mazhab relates to the exchange of ribawi goods. In the context of the sale of securitized debt, the characteristics of securities differentiate it from currency, and hence, it is not bound by the conditions for exchanging goods.

[1] Shari’a Standard No.7: HawalaDefinition of hiwala from Shari’a Standards by Accounting and Auditing Organization For Islamic Financial Institutions (AAOIFI) Rabi’ I 1424H – May 2003.

1 comment:

  1. tolong saya minta contoh flowchartnya bisaaa ?? untuk keperluan proyek