Hundi and hawala are informal money transfer systems that are commonly used in South Asia and the Middle East. Both systems rely on networks of agents who facilitate the transfer of money between individuals, often across international borders. However, there are some key differences between the two systems:
- Legal status: Hundi is generally considered to be illegal in most countries, while hawala is not necessarily illegal, but is often unregulated.
- Operation: Hundi operates outside of the formal financial system and does not involve the use of banks or other financial institutions. Hawala, on the other hand, typically involves the use of informal networks of agents who are linked to more formal financial institutions.
- Record-keeping: Hundi relies on trust and personal relationships between agents and clients, and does not involve the use of written records or receipts. Hawala, on the other hand, typically involves the use of written records and receipts to track transactions.
- Risk: Both hundi and hawala systems carry a higher risk of fraud or money laundering compared to formal financial institutions, due to their informal nature and lack of regulation. However, the higher risk is generally associated with hundi, as it operates completely outside of the formal financial system.
Overall, while hundi and hawala systems serve similar purposes, they operate in different ways and carry different levels of risk. Both systems are used by individuals who may not have access to traditional financial institutions, or who may prefer to use these informal networks for various reasons.
This page was last updated on January 3, 2023.