Wakalah, Hawalah, Ibra, and Rahn

The contracts of wakalah, hawlah, ibra, and rahn play an essential role in Islamic finance as they support core contracts. Wakalah combined with murabahah results in a product called murabahah by purchase orderer. Similarly, rahn allows a creditor to obtain collateral from debtors and therefore plays a critical role in debt financing or debt‐based sale contracts. To understand the current use of the wakalah concept, this chapter illustrates its application within a commodity murabaha contract. The contract of wakalah is essential to the industry on its own as it plays a vital role in Islamic banking, takaful, and asset management. The contract of hawalah plays a vital role in the development of many retail banking products and services. Ibra has helped develop a pricing mechanism for any deferred payment‐based contracts. Rahn allows Islamic banks to mitigate credit by securing collateral from the borrower.