Taskin Ahmed Kayum at 01:07, 29 December 2025

2025-12-29T01:07:34Z

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{{Short description|Informal currency transfer system}}
{{For|illegal use of hawala|hawala and crime}}
{{For |the community in the Persian Gulf states|Huwala}}
{{Financial market participants}}

'''Hawala''' or '''hewala''' ({{langx|ar|حِوالة}} {{lang|ar-Latn|ḥawāla}}, meaning ''transfer'' or sometimes ''trust''), originating in India as '''havala''' ({{langx|hi|हवाला}}), also known as '''{{lang|fa-Latn|havaleh}}''' in [[Persian language|Persian]],<ref>{{Cite web|title=How Iranians are avoiding sanctions|url=https://www.ft.com/content/6ca69788-0a48-11dd-b5b1-0000779fd2ac|url-status=live | access-date=2018-07-31| archive-date=2018-07-31|archive-url=https://web.archive.org/web/20180731031418/https://www.ft.com/content/6ca69788-0a48-11dd-b5b1-0000779fd2ac}}</ref> and '''{{lang|so|xawala}}''' or '''{{lang|so|xawilaad}}'''<ref name=HMGov>{{Cite web | author1=Edwina Thompson |title=Safer corridors rapid assessment - Somalia and UK banking |date=September 2013 |publisher=HM Government |page=5 |url=https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/283826/SAFER_CORRIDORS_RAPID_ASSESSMENT__2013__SOMALIA___UK_BANKING.PDF |access-date=14 May 2016 |archive-date=10 October 2015 |archive-url=https://web.archive.org/web/20151010082903/https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/283826/SAFER_CORRIDORS_RAPID_ASSESSMENT__2013__SOMALIA___UK_BANKING.PDF |url-status=live }}</ref> in [[Somali language|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 follows [[Islam]]ic traditions, but its use is not limited to [[Muslims]].<ref name="Vaknin">{{Cite web |last1=Vaknin |first1=Sam |title=Hawala, or the Bank that Never Was |url=http://samvak.tripod.com/nm104.html |website=samvak.tripod.com |access-date=5 September 2017 |date=June 2005 |archive-url=https://web.archive.org/web/20170920054104/http://samvak.tripod.com/nm104.html |archive-date=20 September 2017 |url-status=dead }}</ref>

== Origins ==
The hawala system originated in India.<ref>{{Cite web| title=The Hawala Alternative Remittance System and its Role in Money Laundering| url=https://www.treasury.gov/resource-center/terrorist-illicit-finance/Documents/FinCEN-Hawala-rpt.pdf| publisher=| access-date=2016-10-16| archive-date=2016-12-28|archive-url=https://web.archive.org/web/20161228041941/https://www.treasury.gov/resource-center/terrorist-illicit-finance/Documents/FinCEN-Hawala-rpt.pdf|url-status=live}}</ref> 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".<ref>{{Cite journal |last1=Schramm |first1=Matthias |last2=Taube |first2=Markus |title=Evolution and institutional foundation of the hawala financial system |journal=[[International Review of Financial Analysis]] |date=1 January 2003 |volume=12 |issue=4 |pages=405–420 |doi=10.1016/S1057-5219(03)00032-2 |issn=1057-5219}}</ref><ref>{{Cite news |last1=Mukherjee |first1=Andy |title=The Centuries-Old Financial System Better Than DeFi |url=https://www.bloomberg.com/opinion/articles/2022-06-20/defi-can-t-hold-a-candle-to-the-centuries-old-trust-based-system-called-hawala |access-date=21 June 2022 | publisher=Bloomberg News |date=20 June 2022 }}</ref>

It has been speculated that "Hawala" itself influenced the development of the [[Agency (law)|agency]] in [[common law]] and in [[civil law (private law)|civil laws]], such as the ''aval'' in [[Law of France|French law]], the [[:pt:aval|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.<ref>{{Cite journal |last=Badr |first=Gamal Moursi |title=Islamic Law: Its Relation to Other Legal Systems |journal=[[American Journal of Comparative Law]] |volume=26 |issue=2 [Proceedings of an International Conference on Comparative Law, Salt Lake City, Utah, February 24–25, 1977] |date=Spring 1978 |pages=187–98 |doi=10.2307/839667 |jstor=839667}}</ref> The transfer of [[debt]] was "not permissible under [[Roman law]] but became widely practiced in medieval Europe, especially in [[commercial transaction]]s", potentially borrowing from hawala. [[Agent (law)|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".<ref>{{Cite journal|title=Islamic Law: Its Relation to Other Legal Systems|first= Gamal Moursi|last=Badr|journal= The American Journal of Comparative Law|volume=26| issue=2 |date=Spring 1978|pages=187–98 [196–8]|doi=10.2307/839667 |jstor=839667}}</ref> The claims about the Islamic origins of hawala have later been challenged by Cinar.<ref>{{Cite journal |last=Çınar |first=Ali Ekber |date=2022-04-15 |title=Situating an Informal Funds Transfer System in Islamic Legal Theory: The Origin of Hawala Revisited |url=https://iupress.istanbul.edu.tr/en/journal/ilahiyatjournal/article/situating-an-informal-funds-transfer-system-in-islamic-legal-theory-the-origin-of-hawala-revisited |journal=Darulfunun Ilahiyat |doi=10.26650/di.2022.33.1.1052681|url-access=subscription |doi-access=free }}</ref>

==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 system]]s 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]].<ref>{{Cite book| title= International White Collar Crime, Cases and Materials | author1=Bruce Zagaris |publisher= Cambridge University Press |year=2010 |isbn= 9781139484275| pages=444}}</ref>

== 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 [[Side job|moonlighting]] operation.<ref name="Vaknin" />

Hawala generally works as follows:

# A customer approaches a hawala broker in one city and gives a sum of money that is to be transferred to a recipient in another, usually foreign, city. Along with the money, he usually specifies something like a password that will lead to the money being paid out.
# The hawala broker calls another hawala broker in the recipient's city, and informs that broker about the agreed password, or gives other disposition of the funds.
# The intended recipient, who also has been informed by the sender about the password, now approaches the broker in their city and tells him the agreed password. If the password is correct, then the broker releases the transferred sum to the receiving customer, usually minus a small commission.
# The first broker now owes the second broker the money that has been paid out to the receiving customer; thus the second broker has to trust the first broker's promise to settle the debt at a later date.

The unique feature of the system is that no [[promissory note|promissory instruments]] are exchanged between the hawala brokers: the transaction takes place entirely on the [[honour system]]. As the system does not depend on the legal enforceability of claims, it can operate even in the absence of a legal and juridical environment. Trust and extensive use of connections are the components that distinguish it from other remittance systems. Hawaladar networks are often based on membership in the same family, village, clan or ethnic group, and cheating is punished by effective excommunication and the loss of honour, which lead to severe economic hardship.<ref name="Vaknin" />

Informal records are produced of individual transactions, and a running tally of the amount owed by one broker to another is kept. Settlements of debts between hawala brokers can take a variety of forms (e.g., goods, services, properties, transfers of employees, etc.), and need not take the form of direct cash transactions.

In addition to commissions, hawala brokers often earn their profits through bypassing official [[exchange rate]]s. Generally, the funds enter the system in the source country's currency and leave the system in the recipient country's currency. As settlements often take place without any foreign exchange transactions, they can be made at other than official exchange rates.

Hawala is attractive to customers because it provides a fast and convenient transfer of funds, usually with a far lower commission than that charged by banks. Its advantages are most pronounced when the receiving country applies unprofitable exchange rate regulations or when the banking system in the receiving country is less complex (e.g., due to differences in the legal environment in places such as Afghanistan, Yemen, and Somalia). Moreover, in some parts of the world, it is the only option for legitimate fund transfers. It has been used even by aid organizations in areas in which it is the best-functioning institution.<ref name="Passas, Nikos 2006 pp. 46–62">{{Cite journal |last=Passas |first=Nikos |year=2006|title=Demystifying Hawala: A Look into its Social Organization and Mechanics|journal=Journal of Scandinavian Studies in Criminology and Crime Prevention |volume=7 |issue=suppl 1 |pages=46–62 |doi=10.1080/14043850601029083|s2cid=145753289 }}</ref>

== Regional variants ==
[[Dubai]] has been prominent for decades as a welcoming hub for hawala transactions worldwide.<ref>{{Cite web|url=https://www.treasury.gov/resource-center/terrorist-illicit-finance/Documents/FinCEN-Hawala-rpt.pdf |title=Hawala| website=www.treasury.gov| publisher=Financial Crimes Enforcement Network with Interpol/FOPAC| access-date=October 16, 2016|archive-date=December 28, 2016|archive-url=https://web.archive.org/web/20161228041941/https://www.treasury.gov/resource-center/terrorist-illicit-finance/Documents/FinCEN-Hawala-rpt.pdf|url-status=live}}</ref>

=== South Asia ===

==== Hundis ====
{{Main|hundi}}
[[File:1951 Bombay Province Rs 2500 Hundi.jpg|thumbnail|right|A 1951 hundi of Bombay Province for Rs 2500 with a pre-printed [[revenue stamp]]]]
The ''hundi'' is a financial instrument that developed on the Indian sub-continent 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".<ref>{{Cite web|title=Reserve Bank of India|url=https://rbi.org.in/scripts/ms_hundies.aspx|access-date=2022-11-20|website=rbi.org.in}}</ref>

=== Horn of Africa ===
According to the [[Central Intelligence Agency|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<ref name="HMGov" /><ref>{{Cite book|last1=Monbiot|author-link=George Monbiot|first1=George|title=How did we get into this mess?|date=2016|publisher=Verso|isbn=978-1-78478-362-4|pages=237–238|edition=First}}</ref> are now responsible for the transfer of up to $1.6 billion per year in remittances to the country,<ref name="CIAhaw">{{Citation |title=The World factbook |url=https://www.cia.gov/library/publications/the-world-factbook/ |publisher=[[Central Intelligence Agency]] |place=US |contribution-url=https://www.cia.gov/library/publications/the-world-factbook/fields/2116.html#so |contribution=Somalia |access-date=2011-09-13 |archive-date=2013-05-10 |archive-url=https://web.archive.org/web/20130510200259/https://www.cia.gov/library/publications/the-world-factbook/ |url-status=dead }}.</ref> most coming from working Somalis outside Somalia.<ref name="CBShaw">{{Citation |url=http://www.somalbanca.org/economy-and-finance.html |publisher=Somal banca |newspaper=CBS |title=Economy & Finance: Hawaladars |access-date=2018-12-05 |archive-url=https://web.archive.org/web/20090124192809/http://somalbanca.org/economy-and-finance.html |archive-date=2009-01-24 |url-status=dead }}.</ref> Such funds have in turn had a stimulating effect on local business activity.<ref name="CIAhaw" /><ref name="CBShaw" />

=== West Africa ===
The [[Tuareg rebellion (2012)|2012 Tuareg rebellion]] left Northern Mali without an official money transfer service for months. The coping mechanisms that appeared were patterned on the hawala system.<ref name=04385FSIHSD3>{{Cite news |url=https://www.voanews.com/a/mail-western-union-black-market/1497859.html |title=Malians Shelter to Black Market to Transfer Cash |date=August 29, 2012 |publisher=[[Voice of America]] |access-date=2012-09-08 |archive-url=https://web.archive.org/web/20120901215342/http://www.voanews.com/content/mail-western-union-black-market/1497859.html |archive-date=September 1, 2012 |url-status=live }}</ref>

== See also ==
{{Portal|Economics}}
* [[FATF blacklist]]
* [[Financial Action Task Force on Money Laundering]] (FATF)
* [[Hawala and crime]]
* [[Hawala scandal]]
* [[Informal value transfer system]]
* [[Remittance|Global ranking of remittance by nations]]
* [[Remittances to India]]
* [[Terrorism financing]]

== References ==
{{Reflist}}

{{Islamic studies}}
{{Authority control}}

[[Category:Informal value transfer systems]]
[[Category:Remittances]]
[[Category:Payment systems]]
[[Category:Islamic financial contracts]]

Hawala - Revision history

Taskin Ahmed Kayum at 01:07, 29 December 2025