What Is the Ruling on Using Hundi (Hawala) Transactions?

Answered by Shaykh Muhammad Carr

Question 

I am the third-largest shareholder in a private limited BPO company.

Business: Provides fully halal services (IT and administrative outsourcing).

Issue: The company’s entire revenue is transferred through hundi/hawala channels, as the IRS does not recognize our profit-sharing arrangement. To my knowledge, this is the only unlawful aspect of the business.

My Role: I handle operations only and have no access to financial matters. Although I verbally object to the use of hundi, the other directors outvote me.

Intent: I do not take any profit derived from hundi transactions for myself. I only receive a salary for my employment and plan to sell my shares in 2–3 years, once their value increases as the company grows.

Am I sinful for retaining my shares for future sale while the company continues to use hundi?

Will the proceeds from selling my shares be halal for me?

Answer

In the Name of Allah, the Most Merciful and Compassionate.

It is permissible for you to retain your shares, and if you choose to sell them, you are entitled to keep the proceeds.

Using hundi—a term synonymous with hawala—as a payment mechanism is permissible, provided that all the conditions of hawala are fulfilled. It does not in any way compromise the company’s Shari’a compliance.

Something that falls outside the IRS framework does not necessarily mean it is unlawful. It may simply fall outside their regulatory framework, and such activities are construed as unregulated, not illegal per se.

Determinant of Permissibility

Permissibility is primarily determined by a qualitative analysis of the product or service offered. Since you have stated that the company outsources IT and administrative functions for a fee, there is no concern about this matter.

Payment Structures 

Hawala is valid and is permitted by the Quran, Sunna, consensus, and reasoning.

Abu Hurayra (May Allah be pleased with him) narrated that the Prophet (May Allah bless him and give him peace) said, ‘Default on payment by a solvent debtor is unjust, and if any of you is transferred to a solvent person, he should accept the transfer’.

In another version, related by Ahmad and Bayhaqi, the Prophet (May Allah bless him and give him peace) said, ‘If one is referred to a solvent person for the recovery of his right, such a person must accept the transfer’.

The Prophet’s order that the creditor must accept the transfer means that the transfer of debt is legal; otherwise, he would not have given that order. [AAOIFI]

As long as the hawala structure does not involve any impermissible elements, such as riba or contractual uncertainty (gharar), it is permissible.

Hawala is a commutative transaction with an altruistic component. It is legislated out of necessity (haja), and therefore, equivalence is taken into account in the exchange, similar to a loan contract (qard). [See Khatib, Mughni al-Muhtaj]

Generating Profit

In essence, hundi/hawala is a value transfer mechanism, not a conventional profit-making business in itself. But intermediaries (the hawaladars) may earn profit in one of the following ways:

Exchange rate difference

If the transfer involves different currencies (e.g., someone pays in USD in one country and the recipient receives INR or PKR in another), the hawaladar applies a private exchange rate. The small margin between the actual market rate and the rate they offer constitutes their ‘profit’.

Service Fee or Commission

In some arrangements, the hawaladar charges a fixed fee or a percentage of the amount transferred to facilitate the transaction.

Investment of Float Funds:

When a hawaladar receives money before settling accounts with their counterpart in another region, they may temporarily invest or use those funds in a local business, earning short-term returns before repayment.

I pray this is of benefit and Allah guides us all.

[Shaykh] Muhammad Carr
Checked and Approved by Shaykh Faraz Rabbani

Related Answers

• What Is the Ruling on Using Hawala Transactions?
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• Can Currency Exchange Be Done Through Third-Party Agents?
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Shaykh Muhammad Carr has dedicated his life to studying and transmitting our beautiful deen. His studies have taken him around the globe, where he has benefitted from many luminaries. Under the guidance of his teachers – Shaykh Taha Karan, Shaykh Yaseen Abbas, Shaykh Muadh Ali and many others – Shaykh Muhammad has grown to appreciate the beauty and benefits of diverse scholarship. He completed his memorization of the Qur’an at Dar al-Ulum Zakariyyah in September 1997 and received an Alimiyya Degree in 2006 from DUAI (Darul Ulum al-Arabiyyah al-Islamiyyah). He is also affiliated with Masjid Auwal in Bo Kaap, Cape Town (the oldest mosque in South Africa), where he serves as a co-imam, and Dar Al-Safa, where he has taught since 2018. As a teacher, he imparts the wisdom of our heritage and tradition by opening the door for students. As an imam, he has the unique opportunity to serve his community in daily life. 

In addition to his roles as a teacher and imam, Shaykh Muhammad Carr has contributed significantly to the administrative and advisory aspects of Islamic institutions. Since 2023, he has served as the Administrative Director at The Imam Kurani Institute, contributing to the institution’s growth and development. He continues to pursue traditional Islamic Sciences, possessing a keen interest in Islamic Contract Law and Finance. Shaykh Muhammad has been a Shari’ah Board Member for Islamic Asset Management & Insurance Companies since 2001, aligning financial practices with Islamic principles.