Hawala, also known as hundi, is a traditional and informal system of money transfer that has been used for centuries in many parts of the world, particularly in the Middle East and South Asia. It is based on the principle of trust and the use of a network of agents, known as hawaladars, who facilitate the transfer of money between individuals or businesses.
The hawala system operates outside of the formal banking system and is not subject to the same regulations and oversight. This has made it attractive to many people, especially those who do not have access to traditional banking services or who want to avoid the fees and regulations associated with formal money transfer systems.
To use the hawala system, a person who wants to transfer money, known as the sender, contacts a hawaladar in their local area and gives them the money to be transferred, along with the name and contact details of the recipient. The hawaladar then contacts a trusted hawaladar in the recipient’s area and arranges for the money to be delivered to them.
The hawaladars involved in the transaction do not actually transfer the money physically. Instead, they record the transaction in their books and settle the balance at a later date through their own networks of hawaladars. This means that the money is effectively transferred without actually moving across borders.
The hawala system relies on trust and personal relationships between the hawaladars involved in a transaction. This makes it difficult for authorities to regulate and monitor, and has also made it vulnerable to abuse by criminal organizations and terrorist groups who use it to launder money and finance their activities.
Despite these risks, the hawala system continues to be used extensively in many parts of the world, particularly in areas where access to formal banking services is limited. It is also often used by migrant workers who want to send money back to their families in their home countries, as it is often faster, cheaper, and more secure than other money transfer methods.
In recent years, there have been efforts to formalize and regulate the hawala system, in order to reduce the risks of abuse and make it more transparent. Some countries have introduced licensing schemes for hawaladars, and are working to establish legal frameworks and standards for the industry.
Overall, hawala is a traditional and informal system of money transfer that has been used for centuries, and continues to be popular in many parts of the world. It is based on trust and personal relationships between hawaladars, and operates outside of the formal banking system. While it has been criticized for its potential to be used for money laundering and terrorist financing, it is also seen as an important and valuable service for those who do not have access to traditional banking services.
This page was last updated on January 2, 2023.