Discounted’ Debt Transfer

Answered by Shaykh Muhammad Afifi al-Akiti

Question :Discounted’ Debt Transfer
(Hawala al-Dayn)

Bismillah al-Rahman al-Rahim, al-hamdulillah wa-l-salat wa-l-salam ‘ala Rasulillah, wa-ba’d.

Answer : This is the essence of the issue:

Can a debt (mature or future) be sold. If so can it be sold at a price lower or higher than its face value?

The reason that the issue of discounted bay’ al-dayn has come, is in relation to a project whose aim is to provide income to a waqf which is dedicated to supporting a mosque. The financiers will be providing capital by way of loan. This will be interest free. However, the financiers would like to have the option of tranferring their right to this money to someone else or to others. They may want to do this before the project is complete or after the project is complete but before the loan is paid in full. Thus there is a need to know where they can do this.

If so, can they transfer their right to someone else at a price lower than the value of the outstanding debt?

Secondly, is it possible to give the financiers an enforceable right to convert any part of the outstanding debt into equity so that they then (i.e from the date of the conversion) share in the profit and losses?”

Some useful fiqhi terminologies [mustalahat] of this Bab:

Muqrid =
Da’in = Mudin [lender/creditor]

Muqtarid =
Madin = Madyun [borrower/debtor]

Dayn =
Qard = The item on loan (such as gold and money, or wheat and barley, or foodstuff).

Muhil =
the one transferring the debt. [the first lender and the second borrower]

Muhtal =
Muhal = the one whose right to collect the debt is being transferred. [the second lender]

Muhal ‘Alayh =
the one to whom the debt is transferred to. [the first borrower]

Your first question starts off with a query about Bay’ al-Dayn [sale of debt] but it ends with what is in fact a discussion on Hawala [debt transfer]. Although, it might be for you, that the difference here is somewhat technical, it is important that you know what you are asking for, because there are differences of opinions among the leading schools of fiqh concerning the validity of Bay’ al-Dayn (for which, our school, the Shafi’is, made a conditional allowance for this type of transaction), while all four schools agree [Ittifaq] on the permissibility [Mubah] of Hawala transactions, and in fact the latter transaction is accepted by Ijma’ al-Nas [general consensus].

Now, you did not specify (if Bay’ al-Dayn was actually intended) whether it will be a Bay’ Dayn bi-Dayn [a transaction involving a debt with another debt] or Bay’ Dayn bi-‘Ayn [a transaction involving a debt with a thing]. However, from your question, I am assuming that Bay’ Dayn bi-‘Ayn is certainly not what was intended, and to a lesser extent, Bay’ Dayn bi-Dayn too. It turns out that your question is in fact concerned to address the following issue: “the financiers would like to have the option of transferring their right to this money to someone else or to others.” We can happily conclude that that is a discussion belonging to the Bab of Hawala (and of course, the answer here is yes). However, before attending to your requests, in what follows, I will briefly present the position of the Shafi’i school concerning both kinds of Bay’ al-Dayn.

There are differences of opinions in our school, with respect to both kinds of Bay’ al-Dayn.

As for Bay’ Dayn bi-‘Ayn, there is a famous khilaf in which the Qawl Azhar [the Clear Position] of Imam al-Nawawi in his Minhaj invalidates [Batil] this type of transaction. However, later jurists [muta’akkhirun], including the most important ones such as Imams Ibn Hajar, al-Ramli and Shaykh al-Islam Zakariyya al-Ansari allowed [Mubah] such transactions, when there is a need [Hajat] for it, and this is the Qawl Mu’tamad [Relied Upon Position] of the school, following in fact what Imam al-Nawawi himself said in his other work, the Rawda al-Talibin and Imam al-Rafi’i in Bab al-Khul’, validating [Sahih] such transactions [Ibn Hajar, Tuhfa, 6:30-31; al-Ramli, Nihaya, 4:92; Fath al-Wahhab, 1:176; cf. al-Nawawi, Rawda, 3:222-223]. (The khilaf here is actually due to the subject-matter of salam [forward sale; i.e., muslam fih].) The most important condition attached to this transaction is that the exchange of the two remunerations [qabd al-‘iwadayn; or in the Rawda: qabd al-badal] or at the very least, their identification [ta’yin] must take place in the Majlis al-Bay’ or al-‘Aqd [that is to say, when the agreement or transaction is first made], which means that all parties concerned must have taken into possession or have specified and agreed to what is due to them in one Majlis or before they part from each other–without this condition, the Shafi’is do not allow the sale of a debt to a third party [bay’ al-dayn li-ghayr man ‘alayh; note that for Hawala transactions, it is like bay’ al-dayn li-man ‘alayh]. (Other conditions include, the Dayn [what is on loan that will be used for sale, i.e., the Dayn Mabi’] must be monetary (such as gold), and not commodity (such as wheat), for example, and so on.)

An example of Bay’ Dayn bi-‘Ayn which is allowed is:

The Muqrid who happened to be strolling around the Suq, saw a garment of his liking. The Muqrid wanted to buy the garment, which is being sold for 100 dinars, but he unfortunately did not have the means to buy it at that time. So the Muqrid went looking for the Muqtarid (who owes him 150 dinars). Upon finding the Muqtarid, the Muqrid told him about his desire to purchase the garment and that he intends to sell his right to collect the debt for that garment. The Muqtarid agrees to this and so they both went to the shopkeeper and conducted the transaction. The transaction is concluded with the Muqrid receiving the garment, and in return, he sold his right to collect the debt to the third party here (i.e., the shopkeeper) for that merchandise. At the same time the Muqtarid then acknowledges (draws into a new loan agreement, for example) with the shopkeeper that he is willing to repay him his debt.

As for Bay’ Dayn bi-Dayn, the discussion of it found in an important Shafi’i training manual, the I’ana al-Talibin of Sayyid al-Bakri is sufficient for us:

“The Qawl Asahh [the More Correct Position] is that, Bay’ Dayn bi-Dayn is permissible when there is a need [Hajat; because it is a Rukhsa or dispensation]. That is because, the Muhil sells that which is in the responsibility of the Muhal ‘Alayh to him for that which is in his responsibility to the Muhtal; while the Muhtal sells that which is in the responsibility of the Muhil for that which is in the responsibility of the Muhal ‘Alayh. So the seller [Ba’i’] is the Muhil, while the buyer [Mushtari] is the Muhtal; and the merchandise [Mabi’] is the Muhil’s debt, while the price [Thaman] is the Muhtal’s debt.” [I’anat, 3:89-90].

The merchandise is a debt and the price is also a debt, so in reality, what we mean by Bay’ Dayn bi-Dayn, amounts to what is in fact an exchange of credits (i.e., Hawala). In other words, that transaction is a type of Hawala, and that transaction, which is originally invalid, but because it is considered a Rukhsa, is only valid when carried out in ‘Aqd Hawala [Transfer Agreements or Transactions]. This explains why some of our muta’akhkhir scholars like Sayyid al-Bakri and al-Bajuri, inserted a discussion on Bay’ Dayn bi-Dayn in their prolegomena to the Bab of Hawala.

So let us now move to answer the first question at hand, namely, we already know, that lenders have the option of transferring their right to collect the debt to someone else of their choosing, but, “can they transfer their right to someone else at a price lower than the value of the outstanding debt?”

I understand this ‘discount’ to mean, that the value of the debt between the Muhil and the Muhtal to be lower than the total debt between the Muhal ‘Alayh and the Muhil. So for example, the Muhal ‘Alayh first borrowed 200000 for the project from the Muhil for an undetermined period*, then, even while the loan is not yet mature, the Muhil, because of a need, had to borrow from the future Muhtal, 150000. The Muhil then transfers his right to collect the debt to the Muhtal (minimally, with the consent of both Muhil and Muhtal, and not the Muhal ‘Alayh; although the consent of the Muhal ‘Alayh is not required, the Muhal ‘Alayh nevertheless, should have knowledge of the nature of this Hawala or transfer), whether the whole 200000 will go to the Muhtal (meaning that the Muhtal gets an extra 50000; but there is tafsil in this hukm, see below) or only the 150000, and of course, certainly not less than 150000.

Note that for us Shafi’is, the Muqrid is not allowed to impose a condition that the loan is to be repaid on a certain date (even if the Muqtarid were to set or propose a date, it will not be legally binding or enforceable); this is because there is no khiyar shart [option of stipulation] in ‘Aqd Qard [Loan Transaction or Agreement], and either party can conclude the contract at any time (either by the Muqtarid returning the loan, or by the Muqrid, at any time after the first Majlis al-‘Aqd, demand the loan back, and if the Muqtarid asks for more time to settle the debt (for example, if he says, “give me one more week”), and the Muqrid agrees to this, then the loan is considered payable in the future [ajal], and when that week is up, then it is due or mature [hulul]–that is why, the Muqrid must judiciously decide (it is an important decision for him to make, in the same way before making a nadhr or a vow, for example) whether the ‘Aqd Qard will ‘perform’ and to judge, in this case, whether the Muqtarid have the means to return the loan; if it is apparent that it will turn out to be a non-performing loan (and the Muqrid happens to know this) and the future Muqtarid is not in desperate need [mudtarr], then it is actually Haram to enter into a loan transaction [I’anat, 3:59]; in fact, in that case, it would be better to give out charity or Sadaqa instead.

If so, the answer to your first question is yes. The standard discussion is found in the Fath al-Wahhab, where Shafi’i students learn the following:

“Even if Zayd [i.e., the Muhil] owes Bakr [i.e., the Muhtal] 5 [of something], while ‘Amr [i.e., the Muhal ‘Alayh] owes Zayd 10 [of something], and Zayd transfers [the right [haqq] to collect] five of (the debt ‘Amr owes Zayd) to Bakr, then, this is valid.” [Fath al-Wahhab, 1:213].

The Hukm Tafsil of ‘discounted’ Hawala (in the case of the Muhil’s debt (e.g. 150000) to the Muhtal is less than the Muhal ‘Alayh’s debt (e.g. 200000) to the Muhil) are as follows:

There are three possibilities.

(1) The Muhtal receives 200000. This can happen such as when the Muhil tells the Muhal ‘Alayh, “Give all that you owe me (i.e., 200000) to the Muhtal when your debt is due to be repaid.” This is an ijab kinaya [indirect offer] by the Muhil (perhaps due to his modesty) to the Muhal ‘Alayh, informing him of his intention that the Muhil wants the Muhtal to receive his gift (of 50000). (The Muhal ‘Alayh now becomes the Wakil [agent] for the Muhil who is the Muwakkil [commissioner], and the Muwakkal Fih [what is being commissioned] is the closure of the ‘Aqd Hiba [Gift Transaction] with the Muhtal.) When the time comes, the Muhil will then make an offer [ijab] on the Muhil’s behalf to the Muhtal and if the Muhtal accepts [qabul], the whole transaction is complete. In this case, out of the 200000 that the Muhtal gets, 150000 is through ‘Aqd Hawala, while the 50000 is through ‘Aqd Hiba. In the event that the Muhtal were to reject the offer, then the 50000 is to be returned to the Muhil.

(2) The Muhal ‘Alayh only pays the Muhtal, 150000. This can happen such as when the Muhil tells the Muhal ‘Alayh, “Give only what I owe (i.e., 150000) to the Muhtal when your debt is due to be repaid, and keep the rest.” In his instruction to the Muhal ‘Alayh, the Muhil, this time, has included his offer to the Muhal ‘Alayh, to receive his gift (of 50000). In this case, the Muhtal completes a straightforward Hawala transaction, while the outstanding debt of the Muhal ‘Alayh is converted into a Hiba.

(3) The Muhtal receives 150000, and the Muhil receives 50000. This can happen such as when the Muhil tells the Muhal ‘Alayh, “Give what I owe (i.e., 150000) to the Muhtal and return to me the rest what you owe me when all your debts are due to be repaid.” This is a sarih [clear] expression by the Muhil, asking that everything be returned to what is due to all parties. In this case, the ‘Aqd with the Muhtal is Hawala, while the Muhal ‘Alayh completes a straightforward ‘Aqd Qard. The Muhil can also, if he wishes, terminate the ‘Aqd Qard with the Muhal ‘Alayh, after the ‘Aqd Hawala is made between the Muhil and the Muhtal, by the Muhil asking the Muhal ‘Alayh to return the 50000 well before the loan between the Muhtal and the Muhal ‘Alayh is mature.

Now, the first scenario is the way of Ihsan and what is the best of possibilities and the optimum hukm. The second is better than the third, because there is an element of charity or sadaqa in it, while the last represents the minimum fiqhi ruling here.

Know, that it is permitted for the Muqrid to derive benefit [manfa’a] from his loan transaction, as long as the Muqrid does not initiate it (such as putting a clause or a condition in his loan agreement in order to get some benefit from the loan; for this will become Riba Qard [interest-loan], and it is Haram for him to profit even if a trifle from this loan). The benefit to the Muqrid can only come from the Muqtarid’s own choice and from the latter’s kind heart (in fact, it is demanded by our religion; although the fiqhi hukm for the Muqrid is, it is permissible or Mubah to benefit from his loan, for the Muqtarid it is Mandub, Sunna or recommended, when repaying his debts (of any item) to give what is better or more than what he owed in the first place – this is what is known among scholars as the “Ahsan Qada'”).

At the very least, part of the ‘giving more back’ is for the borrower to say for the lender, who has helped him in the first place, a Du’a, and to give him his blessings and Baraka to the lender such as when our Prophet Muhammad (may Allah bless him and grant him peace!) said the following upon returning a loan:

BArakallAhu fI ahlika wa-mAlika innamA jazA’u s-salafi l-hamdu wa-l-adA’u!
“May Allah give Baraka to your family and to your wealth! The reward of a loan is nothing but praise [i.e., by showing our appreciation and giving thanks] and fulfillment [i.e., by returning the loan].”

That is the reward for the Muqrid. For Muslims, to be a Muqrid is something recommended in our religion (and sometimes it becomes Wajib [obligatory] such as giving a loan to someone who is in desperate need or compelled to ask for a loan [mudtarr; not having a Hajat any longer, but Darura]; and sometimes it can be Makruh and even Haram, such as giving a loan to someone, with the Muqrid knowing that the loan will be used in acts of disobedience or Ma’siya): its fiqhi ruling is exactly like helping others in need. There is no denying that the act of giving a loan is an ‘amal that is very beneficial and has many fa’ida to the society, for everyone in our society will always have a need for some sort of help in one form or another. Remember that the Best of Creation (may Allah bless him and grant him peace!) said:

“Allah will [always] help [His] slave, so long as the slave [loves] helping his brother.” [AllAhu fI ‘awni l-‘abdi mA dAma l-‘abdu fI ‘awni akhIhi].

As for your second question, whether the Muqrid has “an enforceable right [I understand this as, ikrah bi-haqq] to convert any part of the outstanding debt into equity [saham] so that they then (i.e from the date of the conversion) share in the profit and losses?”

The Muqrid does not have an ‘enforceable right’ to convert the ‘Aqd Qard into ‘Aqd Sharika [partnership]. If he does that, then he will be committing an unjustly forced act [ikrah bi-ghayr haqq], which will not only be invalid, but Haram. Under ‘Aqd Qard (“the financiers will be providing capital by way of loan”), what you are asking for, will not be possible nor allowed. He only has rights over the Dayn, but not the Muqtarid. What the Muqrid could do is to terminate the ‘Aqd Qard first (which the Muqtarid will then have to return the Dayn or its equivalent value), and then renegotiate a new contract with the other party.

Since this is a “project whose aim is to provide income to a waqf which is dedicated to supporting a mosque,” (I am assuming here that the project itself is not a Waqf, of course, since it cannot be financed by a loan in the first place), and because I do not know the details and the nature of the project itself, but if it is ultimately meant for the servicing, upkeep and maintenance of the waqf [hifz al-waqf; given that there is the Mosque, the Waqf (for which the proceeds of its rent goes to the Mosque), and the Project (such as buying another house, though this time it is not made into an endowment, but the ‘Sahib al-Project’ intends through his goodwill to give as Sadaqa and charity, some or all of the rent to maintaining the Waqf], then would it not be better that all of the net profits should go to supporting that Waqf, rather than a share in the profits of this project?

Anyway, if you still want to know what the options are over the ‘profit-sharing’ of this project, then my recommendations would be:

(1) Do not provide the capital [mal] to this project by way of Qard [loan] in the first place, but instead, provide the capital by way of ‘Aqd Qirad [a profit-sharing venture for which the loss is borne entirely by the financiers] or ‘Aqd Sharika al-‘Inan [cooperative partnership]. But of course, this will be a different story altogether.

(2) Wait until after the completion of the ‘Aqd Qard, then enter into a new transaction or agreement with the ‘Sahib al-Project’, whether Qirad or Sharika.

(3) If you have to, then terminate the ‘Aqd Qard (by asking for the return of the Dayn). Once the loan transaction is completed, then you can do what you see fit, whether to enter into Qirad or Sharika with the other party.

May this be a source of help and not difficulty.

Only Allah, the Bestower of Fath knows best!

In your service,

Muhammad Afifi al-Akiti
18 Rabi’ II 1424
19 VI 2003


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