Hiwalah, Rahn, Kafalah resume

Contracts of Security

     Thus type of contract consists of three contracts which are hiwalah, kafalah and rahn explanation of each of the contracts is as follows:

1.  Hiwalah (Transfer of Debt)

     Hiwalah means transferring a debt from one debtor (transferor) to another (transferee). Once the transferee has accepted the transfer of debt, the transferor would be released from any obligation. Therefore, as a consequence of the transfer of debt (hiwalah), unlike suretyship, the debtor who transfer his debt and his surety, if ally, are freed from their respective obligations. The creditor can now claim his debt only from the transferee. The transferee, after payment, has aright to claim the amount so paid from the transferor. In such a case, the transferor's claim from the transferee, of any, will be adjusted towards the claim. However, the transferee would be released from his liability in any of the following four situations:

• By payment of the debt.
• By further transferring the debt to another person if the creditor accepts.
• By cantonments by the creditor.
• If the creditor dies and person who accepts the transfer is his heirs.

2.  Rahn (Pledges)

      A creditor, whether an individual or a financial institution, prefers to secure a loan either through personal surety or a pledge. Pledge or rahn is to make a property a security in respect of a right of claim, the payment for which may be taken from the value of the property. The main laws relating to pledge, inter alia, are as follows:

     a.        The contract becomes irrevocable after the pledge is received by the pledgee.

    b.        One pledge may be exchanged for another.

    c.        The pledge may, on his own accord, all the contract.

   d.        Two different creditors may take a common pledge from a single debtor. This pledge will secure the whole of the two debts.

    e.        When a debt is partly paid off, it does not become necessary to return the part of the pledge equivalent to it in full. The pledge has a right to hold the whole until the debt is paid.

  f.        If the pledgor has destroyed or damaged the thing pledged, he must pay compensation. If the pledge has destroyed or damaged it, the amount of its value is struck off the debt.

  g.        If the time for paying the debt has arrived, and the pledgor refuses to make payment, the pledge may approach the court to compel the pledgor to sell the thing pledged in order to pay the debt. On his refusal, the court may sell the pledge to pay the debt.

3  Kalafah (Suretyship)

     Kalafah means to add an obligation to an existing obligation in respect of a demand for something. This may relate to a person, finance or act (performance). Kafalah relating to a person involves the production of the person for whom the kafalah (bail) has been given. Kafalah relating to finance implies an obligation. Kafalah relating to an act or performance as to ensure the performance of a certain act, the failure of which may render th surety liable and responsible. One important point to be stressed is that kafalah, unlike hiwalah, would not release the principal debtor in whose favour the contract is concluded because kafalah is only an obligation in addition to the existing obligation. Among other rules governing kafalah are as follows:

     a.        It is lawful to become surety for surety.

     b.        There may be more than one surety for a single obligation.

   c.        If persons who are jointly indebted become surety for each other, each of them is liable for the whole debt.

    d.        The discharge of the surety does not necessarily discharge the liability of the principal debtor concerned. The opposite scenario will be acceptable as far as the discharge is.

   e.        If a delay is granted to the principal debtor for the payment of his debts, a delay is also granted to the surety principal debtor. But a delay given to the surety is not a delay given to the debtor.