Hawala

Hawala or hewala (), originating in India as havālā () or huṇḍī (, ), also known as in Persian, and or in Somali, is a popular and informal value transfer system based on the performance and honour of a huge network of money brokers (known as hawaladars).

They operate outside of, or parallel to, traditional banking, financial channels and remittance systems. The system requires a minimum of two hawaladars that take care of the "transaction" without the movement of cash or telegraphic transfer. While hawaladars are spread throughout the world, they are primarily located in the Middle East, North Africa, the Horn of Africa and the Indian subcontinent. Hawala usually follows Islamic traditions, but its use is not limited to Muslims.

Origins

The hawala system originated in India. In 2003, hawala as a legal concept was documented, finding evidence of hawala reaching back to 1327, in a publication by Matthias Schramm and Markus Taube, with the title "Evolution and institutional foundation of the hawala financial system".

It has been speculated that hawala itself influenced the development of the agency in common law and in civil laws, such as the aval in French law, the aval in Portuguese law, and the avallo in Italian law. Some legal historians have suggested possible parallels between medieval European practices such as the aval and Islamic legal institutions like ḥawāla. Badr notes, however, that similarities and historical trade contacts do not in themselves demonstrate legal borrowing, and that such claims remain unproven. The transfer of debt was "not permissible under Roman law but became widely practiced in medieval Europe, especially in commercial transactions", potentially borrowing from hawala. Agency was also "an institution unknown to Roman law" as no "individual could conclude a binding contract on behalf of another as his agent". On the other hand, Islamic law and the later common law "had no difficulty in accepting agency as one of its institutions in the field of contracts and of obligations in general". The claims about the Islamic origins of hawala have later been challenged by Cinar.

Regulation

Following the September 11 attacks in 2001, international organizations responsible for counterterrorism and enforcing laws against money laundering have directed their efforts on identifying problems within the hawala, as well as other remittance systems. The First International Conference on Hawala in May 2002 published the Regulatory Frameworks for Hawala and Other Remittance Systems. The International Monetary Fund (IMF) contributed a chapter, in which informal value transfer systems were considered. According to the IMF, countries with limited financial services experience macroeconomic consequences because residents rely heavily on informal fund transfer systems. Informal value transfer systems share common characteristics, including anonymity and lack of regulation or official scrutiny. Therefore informal value transfer systems may be susceptible to use by criminal organizations for money laundering and terrorist financing.

Procedure

In the most basic variant of the hawala system, money is transferred via a network of hawala brokers, or hawaladars, without actually moving money. According to the author Sam Vaknin, there are large hawaladar operators with networks of middlemen in cities across many countries, but most hawaladars are small businesses who work at hawala as a sideline or moonlighting operation.

Regional variants

Dubai has been prominent for decades as a welcoming hub for hawala transactions worldwide.

Indian subcontinent

Hundis

thumbnail|right|A 1951 hundi of [[Bombay State for ₹2500 with a pre-printed revenue stamp]]

The hundi is a financial instrument that developed on the Indian subcontinent for use in trade and credit transactions. Hundis are used as a form of remittance instrument to transfer money from place to place, as a form of credit instrument or IOU to borrow money and as a bill of exchange in trade transactions. The Reserve Bank of India describes the Hundi as "an unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order".

Horn of Africa

According to the CIA, with the dissolution of Somalia's formal banking system, many informal money transfer operators arose to fill the void. It estimates that such hawaladars, xawilaad or xawala brokers are now responsible for the transfer of up to $1.6 billion per year in remittances to the country, most coming from working Somalis outside Somalia. Such funds have in turn had a stimulating effect on local business activity.

West Africa

The 2012 Tuareg rebellion left Azawad without an official money transfer service for months. The coping mechanisms that appeared were patterned on the hawala system.