Hawala is basically a quick, safe and cost effective way to transfer of funds from one person, city, institution, country to another. In 'Arabic' the word Hawala means 'trust' or 'transfer' . It is very difficult to find out the origination of Hawala, but it would not be wrong to say, that it is as old as the origination of money. Hawala is also known as hundi an informal channel of transferring of funds. Hawala is supposed to be illegal as far as regulatory limitations of a country are concerned. This type of transfer of fund is consider an illegal for of business in different countries. It is difficult to trace out that , in which country hawala is being operated because this informal means of transfer of funds has rooted in almost in every country whether in Asia or Europe. This system of transfer of funds got importance because of the less amount of commission is charged b brokers on transfer of funds than any bank may charger for the same job.
History :
Hawala system has been around and developed as a means of transfer of funds before the development of banks and wire transfer. There is exactly no documented proof or evidence that could verify the evaluation of Hawala system. But there are two things that can provide a hint regarding the origin of the system. The first is that this system developed due to the settlement of accounts between the communities of Southeast Asia and the immigrant South Asian communities in Africa. The second is that hawala was introduced by the Arabic traders to protect themselves against highway robbery. Because in ancient times traders had to cover long distance either on camel or on other source of transportation, so it was very risky for the traders to bring their money themselves, while they were in the way, so they might thought to develop such system of money transfer, that not only saves their money but also they could complete their business transactions within and across the borders. The term hawala was basically developed by the Muslims at in that era.
How Hawala Operates ?
The basic charm and attraction of this transfer of fund system is that in this system there in no involvement of physical transfer of money from one place to another. A customer who might be a migrant worker, who is willing to transfer its funds to its relative to another country, he will have to meet with a hawala broker. This person will hand over certain sum of money to be transferred to the its beneficiary to the broker.
The Hawala broker regularly runs this lawful business in addition to financial services, he offers and has business contact, a friend or a relative in the country. The Hawala operator contacts with their other Hawala partner, normally they contact with each other from their personal or business network, in the recipient city or country by phone, fax or e-mail. The partner instructs its partner to deliver the amount to the beneficiary home. He also provide name, address and telephone number of the recipient home and promise to settle the debt at a latter stage. The customer doest not necessarily get a receipt but he is given a identification code as a proof of this transaction. The Hawala broker in the recipient country or city contacts the beneficiary and delivers the funds. It is very easy for the recipient to receive the funds without producing any identity documents other than any previously agreed code.
There is no written agreement or contract between the parties to complete this transaction, but this whole system and transaction is completed on the basis of trust and reliability. In this system it is assumed that Hawala broker is connected with other brokers or it would not be wrong to say that the whole system of Hawala is run by the network of brokers, who access the recipient's country or city. Hawala network often based on the friends and relatives, as closer the relationship , the easier will be the settlement process.
Each time Hawala one Hawala broker instruct other hawala broker to make payment to the beneficiary and each time an informal debt is created. Now the one hawala broker, who delivered the the funds, will recover this amount from the other Hawala broker. Hawala brokers may be the business partners, who may involve in import and export activities. Transfer of funds is one of the regular activities, they are engaged in as a part of their normal dealings with one another. The Hawala broker delivering money to the end beneficiary may also owe the other money, repaying his debts by paying the hawala customers. The first broker may also have entrusted second one with money in order to carry on the hawala activities. After the completion of transaction, the Hawala broker do not keep track of any transaction for regulatory requirement and for customer identification.
The reason people still prefer hawala source as a transfer of fund on the following characteristics :
Hawala system is cost effective , because the hawala brokers charge a very small commission for the transfer of funds that is less to some extent , which is charged by a bank for the transfer of funds. They generate profit from commission and exchange rate speculations.
This system is safe I those countries, there is political insecurity, such as Afghanistan, it is one of the most convenient, safe and inexpensive way to move funds within and outside the country.
The minimum time period required for the completion of hawala transaction is one or two days.
This system totally based on trust and reliability between the parties. In case of breach of contract or cheating the party would be away from this source of transfer of fund.
It is difficult to determine whether the hawala brokers keep the record of these transactions. So these transactions can not be detected or identified.
Hawala system is convenient for those people who can not access financial institution whether for transfer or receive funds from there relatives and friends, because these institution may be out of their reach or may not be cost effective for them.
But in today's era in which terrorism has boomed to great extent, and hawala is the only source they can use to finance their unlawful activities. The reason is that, this system does not provide any proof or identification of the person who transfer funds and to whom funds have been transferred. Every country will have to put their head together in order to make this system more safe and transparent. Large amount of funds are transferred from one country to another by terrorists in order to accomplish their criminal and unethical activities. Afghanistan is the best example, where Talibans are getting large amount of funds and they are spending huge amount of funds for the training of terrorists, having latest weapons and ammunition. Question is that how these Talibans are successfully getting funds and who are those people who are not only providing funds to them but also what sources of transfer of funds of they are using ?
Hawala system is considered very old, and this method is being followed in the same manner as it was formed. UK is supposed to be a very stable and progressive economy, but there is no improvement in fund transfer system, specially hawala system. It is not the problem of one country, but almost in every country this system exist. This system influence economy of a country but also its exchange rate mechanism and flow of foreign exchange, which remained unrecorded officially.
Does not matter how old the system is, problem is that no up-gradation has yet not been made by any sovereign state in order to protect the interest of the masses and the state more safer. While the hawala system may server legitimate purposes for migrant worker or people, its specific characteristics make it vulnerable for those who are willing to proceeds the criminal activities. As they are anonymous and require minimal documentation along with no sufficient proof. This makes them susceptible to abuse by individuals and groups of transferring proceeds of crimes or funds to finance illicit activities.
Besides this formal financial sector has been subject to increase oversight in recent years, which may provide criminals, smugglers and terrorists with additional incentives to launder their profits via less regulated systems, such as hawala systems. Money laundering through formal financial sector involves a series of risk that have increased with recent know-your-customer campaigns and to tightened the security over suspicious transactions. Smuggling large amount of cash in low regulated areas also causes a high risk of losses. Alternative transfer of fund system can reduce transaction risks and allow to place the money in the banking system while avoiding the reporting requirements of the formal banking system.
This system is not very much successful to detect the activities of money launderers, because there is no authenticated mechanism or procedures through which transfer of funds can properly be monitored. It is the need of the time that the powerful and stable economies should come together to determine the limits and procedures of this system. If this system fails, it might create economic slum or financial crises for the whole world. If the drawbacks or weaknesses of this system are not rectified then it would be very difficult to control and keep the money transfer system transparent and free of frauds then it would not be easy to tackle with.
One can not exclude the possibility that terrorists, criminals and drug smugglers would take advantage of that jurisdiction, where no formally constituted backs currently operate. Somalia and Afghanistan are the examples, where financial transactions of all type, from the most innocent to the most criminals, can indeed be passed through the hawala network.
However, in normal situation the hawaladars would appear to have a direct interest in avoiding criminal activity. Cooperation of absolute trust depends on the reliability of their members do business with. If there is no coordination and reliability among the members, it would disturb the whole unity of the network. Hawaladars expect to maintain a personal relationship with their customers and most specially those with whom they engage in large scale transactions. The strength of this network depends on the unity and stable relationship. Nobody denies the for authorities to do everything in the power to contain the activities of terrorisms' financiers and drug traffickers. However, the results are not so productive and fruitful so far. Having impounded consignments of cash passing through hawala network, it is easy to generate headline grabbing reports about the destruction of the financial sinews of terrorist and drug smuggling operations.
Conclusion :
Hawala is a cost effective, safe and quick means of transfer of fund. It is an informal way for transferring of funds from one country, city place to another by the immigrants or workers who are living abroad. It is basically an informal way of transferring of funds, which can be access by the poor people, who have not sufficient resources or can not access the formal institution like banks, because they charge high commission against the transfer of funds.
This system is very old, but still running very successfully all over the world. This system has got many advantages, but it has some other negative things which can be harmful for the world or the country, which is not closely monitoring it.
Although, it is difficult to determine the track the exact volume of funds transferred. The hawaladars do not keep the record of the beneficiary, hence it is very difficult to determine that how much have been transferred and who are those beneficiaries to whom funds have been transferred.
Now-a-days some other groups are taking advantage from this system of transferring of funds. Terrorists, criminals and drug smugglars financing their members all over the world. It is the weakness of this system that it is still unable to detect and provide the detail of the persons to whom money have been transferred and who are they people. If world desire to be safe and free from any crises whether financial or of any type than, this system requires badly needed upgradation in order to make it much safer and to keep it away from those who can misuse it.
I hope that UK and other countries would sit and bring new ideas of upgradaion of this system by brain storming. How new techniques and technical expertise can be adjusted in the system of money transfer. This system was acceptable in the environment in which it was developed , but this is 21st century , with huge challenges which needed to be minimized and reduced in order to bring prosperity, peace and welfare development in the world. This system of money transfer if upgraded, then I am sure fund transfer system would be used with only positive approach. We should not compare the current fund transfer system with that of 18th century system, because current needs, environment and requirements are much different than of past. So we must try to make our system more compatible and useful, so that it can be used for the benefit of the society and human.
