Clarifying the Concept of Debt Conversion and Prohibited Practices

Abstract

This research addresses the concept of debt conversion, including defining the term, discussing the opinions of classical and contemporary jurists regarding debt conversion, identifying prohibited practices related to debt conversion, examining the impact of the debtor's financial situation and balancing the guidelines of contemporary institutions and committees in preventing debt conversion. The first section focuses on defining debt conversion. As I couldn't find a specific definition by jurists, I relied on quoting texts from classical jurists to describe and discuss the issue, aiming to clarify the meaning of debt conversion, its direct and indirect types, as well as its significance according to contemporary jurists. The section concludes by discussing the ruling on debt conversion and identifying prohibited practices, as it has an impact on determining the rulings of old and contemporary issues. The section also touches upon the effects of debt maturity, the debtor's financial distress, the intention of the creditor and debtor, and the impact of debtor coercion on debt conversion.

The second section discusses the guidelines for preventing debt conversion in the decisions of Shariah institutions, engaging in a discussion on this matter. It also presents the researcher's proposed guidelines. The research reaches several results, including the following key findings: If indirect debt conversion occurs with a financially distressed debtor whose debt has reached its due date, and the debtor is forced to repay or enter into new indebtedness, this situation is unanimously prohibited by scholars. However, the Hanafi and Shafi'i schools allow the establishment of new indebtedness with the debtor, provided that there is no explicit intention to convert the debt and the debtor is not coerced.