Definition of Hawala Transfer
A Hawala Transfer is an informal method of transferring money without any actual physical movement of cash. It operates on a system of trust and relies on a network of money brokers (known as “hawaladars”) who facilitate the transfer.
Meaning and Usage
What It Means
“Hawala” comes from the Arabic word meaning “transfer” or “trust.” It is a traditional system originating in South Asia and the Middle East, used to conduct cross-border money transfers via a network of agents.
Where It Is Used
Hawala is widely used in regions with large diaspora communities, including the Middle East, North Africa, and South Asia. It’s also prevalent in migrant communities around the world.
Who Uses It
- Diaspora Communities: Often used by migrant workers sending remittances back home.
- Businesses: Some businesses use it for quick, informal international payments.
- Individuals: Those seeking alternatives to formal banking channels for various reasons, including high banking fees or lack of proper documentation.
Purposes and Benefits
What It Is Used For
- Remittances: Sending money home to family.
- Trade Transactions: Settling cross-border business transactions without formal banking processes.
- Emergency Funds: Transferring money quickly across borders in response to emergencies.
Why It Is Used
- Cost-Effectiveness: Generally lower costs compared to traditional banking.
- Speed: Transfers can be completed rapidly, often within the same day.
- Accessibility: Useful in regions with limited access to formal banking services.
Alternative Names
Hawala transfer is also known as:
- Hundi (in India and Pakistan)
- Xawilaad (in Somali-speaking regions)
- Chop system (in Chinese communities)
Examples
- A worker in Dubai sending money to his family in rural Pakistan: He gives money to a local hawaladar in Dubai, who then contacts an associate in Pakistan. The associate in Pakistan gives an equivalent amount of money to the worker’s family, often in local currency.
- A merchant in the USA purchasing goods from a supplier in India: They use a hawala system to settle the invoice, avoiding the complexities and costs of international bank transfers.
Learning More
To learn more about Hawala transfers, you might explore:
- Books and Academic Papers: Look for works on informal money transfer systems or the history of banking in the Middle East and South Asia.
- Online Financial Platforms and Blogs: Some sites discuss alternative money transfer methods and their implications.
- Regulatory Bodies: Understand the legal and regulatory perspectives on informal money transfer systems.
These resources will provide insights into the operational, cultural, and regulatory aspects of hawala transfers, enhancing understanding of how they function and their role in global finance.
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This page was last updated on April 27, 2024.
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