When debts are offered out of the domain of the two parties involved they become substitutes for money. The transferral of a debt to a third party is regulated in Islamic Law. It can be legal or it can be fraudulent and therefore forbidden. On certain occasions a debt, which is the record of an agreement to pay a certain amount in a term, is used to generate illegal profit. In general, debts in Islam are limited to being debts and nothing else. In other words, debts are intended to be fulfilled as stated in the contract, and if they are transferred this is done by the cancellation of the old contract and the rewriting of a new one.
The creation of the debt is limited to a particular case and a particular person and it cannot be gen-eralised. It is limited to only those who, for what-ever reason do not possess cash in that moment, hut it is, for example, considered unjust if a rich man abuses it:
“Yahya related to me from Malik from Abu’z-zinad from al—A’raj from Abu Hurayra that the Messenger of Allah, may Allah bless him and grant him peace, said, ‘Delay in payment by a rich man is injustice, but when one of you is referred to a solvent man for payment, let him accept re-ferral.’” (“Al—Muwatta”, Book of Commercial Transactions, 84)
It is limited to particular cases, but not for all in general:
“Malik related to me from Musa ibn Maysara that he heard a man say to Sa’id ibn al-Musayyab, ‘I am a man who sells for a debt.’ Sa’id said, ‘Do not sell except for what you take directly to your camel.” (“Al-Muwatta”, Book of Commercial Transactions, 85)
“Malik said, ‘Paying in advance for some-thing which is on hand is only good when the buyer takes possession of what he has paid for as soon as he hands over the gold, whether it be a slave, camel, or house, or in the case of dates, he starts to pick them as soon as he has paid the money It is not good that there be any deferment or credit in such a transaction.”
“Malik said, ‘An example illustrating what is disapproved of in this situation is that, for in-stance, a man may say that he will pay someone in advance for the use of his camel in the hajj, and the hajj is still some time off, or lie may say some-thing similar to that about a slave or a house.” (“Al—Muwatta”, Book of Commercial Transactions, 26)
And the transfer of debts is also limited within its normal and spontaneous use:
The case of a debt for a debt
A debt for a debt means that someone exchanges a debt due to him for another debt to be paid by him.
A debt cannot be used as a medium of exchange, because its use will transform all the transactions on delayed terms, which are halal, into something haram.
“Malik said, ‘If someone advances gold or sil-ver for described animals or goods which are to be delivered before or after the date, there is no harm in the buyer selling those goods to the seller for other goods to he taken immediately and not delayed, no matter how extensive the amount of those goods is, except in the case of food because it is not halal to sell food before he has full pos-session of it. The buyer can sell those goods to someone oilier than the person from whom he purchased them for gold or silver or any goods. He takes possession of it and does not defer it because if he defers it, that is ugly and there en-ters into the transaction what is disapproved of -delay for delay. Delay for delay is to sell debt against one man for a debt against another man.”
(“Al—Muwatta”, Book of Commercial Transactions, 70)
“Malik said, “There is no harm in anything which is taken right away as it is, like fresh milk and fresh picked dates, which the buyer can take on a day to day basis. If the supply runs out before the buyer has what he has paid for in full, the seller gives him back the portion of the gold that is owed to him, or else the buyer takes other goods from him to the value of what he is owed and about which they are in mutual agreement. The buyer should stay with the seller until lie has taken it. It is disapproved of for the seller to leave because the transaction would then come into the forbidden category of a debt for a debt.” (“Al—Muwatta”, Book of Commercial Transactions, 26)
“Malik said, ‘The way of doing things among us concerning someone who makes an advance for foodstuffs at a known rate until a stated date, and the date arrives and he finds that there is not enough of what he was sold with the seller to fulfil his or-der, and so he revokes the sale, is that he must only take back the silver, gold or price which he paid ex-actly. He does not buy anything else from the man for the same price until he has got back what he paid. That is because if he took something else besides the price which he paid him or exchanged it for goods other than the goods which he bought from him, it would be selling food before getting deliv-ery of it.” (“Al—Muwatta”, Book of Commercial Transactions, 49)
On trading generally with receipts (debt) The trading generally with debts, without being contained to particular cases, is usury and haram.
Zayd ibn Thabit, one of the Companions of the Messenger of Allah, may Allah bless him and grant him peace, made haram the trading with receipts. He said it is usury.
“Yahya related to me from Malik that he had heard that receipts were given to people in the time of Marwan ibn al-Hakm for the produce of the mar-ket at al-Jar. People bought and sold the receipts among themselves before they took delivery of the goods. Zayd ibn Thabit and one of the Companions of the Messenger of Allah, may Allah bless him and grant him peace, went to Marwan ibn al-Hakam and said, ‘Marwan! Do you make usury halal?’ He said, ‘I seek refuge with Allah! What is that?” He said, ‘These receipts [sukuukun] which people buy’ and sell before they take delivery of the goods.’ Marwan therefore sent guards to follow them and to take them from people’s hands and return them to their owners.” (“Al-Muwatta”, Book of Commercial Transactions, 44)
On debts representing gold, silver or food
A debt that represents gold, silver or food cannot be bought or sold.
Debts representing primary products, like gold, silver or food, which is like saying money or food, are prevented from becoming a medium of exchange: You cannot sell them. Precisely these products are the ones that people would more likely accept because they are primary, therefore perm-anently demanded. This is closing the door of allowing a debt to become a medium of exchange, since the other merchandise (other than what we called primary), will never be commonly accepted as a medium of exchange.
“Umar lbn al-Khattab wanted that all gold, sil-ver and food should not be sold for goods to be paid later. He did not want there to be any delay or de-ferment in any such sale, whether it involved one commodity or different sorts of commodities.” (“Al - Muwatta”, Book of Commercial Transactions, 38)
“Yahya related to me from Malik from ‘Abdullah ibn Dinar from ‘Abdullah ibn ‘Umar that the Messenger of Allah, may Allah bless him and grant him peace, said, ‘Someone who buys food, must not sell it until he takes pos-session of it.’” (“Al—Muwatta”, Book of Commercial Transactions, 41)
“Malik said, ‘The Messenger of Allah, may Allah bless him and grant him peace, forbade selling food before getting delivery of it.” (“Al-Muwatta”, Book of Commercial Transactions, 49)
“Malik said, ‘...the Messenger of Allah, may Allah bless him and grant him peace, said, ‘Gold for silver is usury except hand to hand.” (“Al-Muwatta”, Book of Commercial Transac-tions, 38)
On selling a debt to the same person who owes it to you in the same kind of goods and at a higher price
This is forbidden.
“Malik said, ‘The generally agreed-on way of doing things among us concerning making an ad-vance for slaves, cattle or goods is that when all of what is to be sold is described and an advance is made for them for a date, and the date falls due, the buyer does not sell any of that to the person from whom he purchased it for more than the price which he advanced for it before he has taken full possession of what he has advanced for it. It is usury it he does.” (“Al—Muwatta”, Book of Commercial Transactions, 70)
“Malik said, ‘If someone advances gold or sil-ver for described animals or goods which are to he delivered before a named date, and the date arrives, or it is before or after the date, there is no harm in the buyer selling those goods to the seller for other goods to be taken immediate] and not delayed, no matter how extensive the amount of those goods is, except in the case of food because it is not halal to sell food before he has full pos-session of it.” (“Al-Muwatta”, Book of Commercial Transactions, 70)
On selling a debt where there is uncertainty
It is forbidden.
You cannot transfer a debt as long as there is a clear evidence that the person can pay, and he is not indebted beyond what he could pay. Uncertain transactions are forbidden.
Imam Malik in his “Al—Muwatta” says:
“Malik said, ‘One should not buy a debt owed by a man whether present or absent, with-out the confirmation of the one who owes the debt, nor should one buy a debt owed to a man by a dead person even if one knows what the deceased man has left. That is because to buy it is an uncer-tain transaction and one does not know whether the transaction will he completed or not.’” (“Al—Muwatta”, Book of Commercial Transactions, 85)
It is disapproved of to buy a debt where uncertainty may exist, because it is not certain if the transaction will he completed or not.
“He said, ‘The explanation of what is disap-proved of in buying a debt owed by someone ab-sent or dead is that it is not known what unknown debtors may have claims on the dead person. If the dead person is liable for another debt, the price which the buyer gives on strength of the debt may become worthless.’” (“Al—Muwatta”, Book of commercial transactions, 85)
What makes it uncertain is that a person may have more debts than he can possibly secure, as is clear in the case of a dead person.
“Malik said, ‘There is another fault there as well. He is buying something, which is not guar-anteed for him, and so if the deal is not completed what he has paid becomes worthless. This is an uncertain transaction and it is not good.” (“Al— Muwatta”, Book of Commercial Transactions, 85)
A debt must be guaranteed for him If it is not guaranteed for him then the buying of this debt becomes an uncertain transaction.
“Malik said, ‘One distinguishes between a man who is only selling what he actually has and a man who is being paid in advance for something which is not yet in his possession. The man advancing the money brings his gold which he intends to buy with. The seller says, “This is ten Dinars. What do you want me to buy for you with it?’ It is as if he sold ten Dinars cash for fifteen Dinars to be paid later. Because of this, it is disapproved of. It is something leading to usury and fraud.’” (“Al— Muwatta”, Book of Commercial Transactions, 85)
What is then a guarantee of a debt? Malik here explains the difference between someone who owes a debt of something he possesses and someone who owes a debt of something he does not possess. If the person does not possess what he owes in a debt, the debt is not guaranteed. To exchange this type of debt is disapproved of because it leads to both usury and fraud.