Contracts and Deals in Islamic Finance: A User s Guide to Cash Flows, Balance Sheets, and Capital Structures

Chapter 16Hibah

Hibah is a unilateral contract, benevolent in nature, which does not require the same conditions of a bilateral contract, whereby one party to the contract transfers ownership of an asset to a counterparty without any consideration. The specific inherent nature of the hibah contract is the unilateral transfer of ownership of the hibah asset from the donor to the donee without any consideration or reward.¹ The transfer of ownership is not based on the performance of any act by the counterparty or payment of any price on spot or in the future. It is a voluntary act at the discretion of the party willing to surrender ownership of an asset to a counterparty. It is essentially a contract of giving a gift, nothing else. The party giving the gift must own the asset at the time of giving the gift, but can also commit to offering a gift to the counterparty in the future.

Once the asset has transferred ownership from the giver to the recipient, the asset cannot be repossessed by the original party.

Giving gifts is usually perceived as a personal act, not necessarily a commercial act, but just as an individual may offer a gift to another person, so may a company offer a gift to another company, individuals, or groups of individuals that are either stakeholders or customers.

Hibah allows one party to exchange assets with another. The giving of hibah cannot be contingent on any other contract, act, or consideration. It is given unilaterally at the discretion of a party to ...