Hawala

The hawala (in Arabic حوالة) (also known as hundi) is one of the informal transfer of funds (ITF) systems. generally used in many regions of the local and international scope. Hawala means “transfer” or “wire” in Arabic banking jargon. The words 'aval', in Spanish, Catalan and French, or avallo in Italian, seem to have a direct relationship with the word hawala.

Concept

The hawala system is an informal channel for transferring funds from one place to another through service providers known as hawaladars. In general, most of the transactions are carried out by immigrant workers living in developed countries, the system can also be used to remit funds from a developing country, although the purpose of the transfer is different.

The appeal of hawala lies in its lower operating costs, speed, little documentation, more security, and the fact that it is less bureaucratic than the formal financial system. On the other hand, the commissions charged by the hawaladars (guarantors) are lower than those of the formal system, many times extracted from the differentials produced by the exchange rate. The agility of the system is boosted by a simple operating mechanism: instructions are given by phone, fax or email to the correspondents and the funds are received at home within 24 hours.

Impact on the economy

TIF systems have direct and indirect repercussions on the macroeconomy. These systems have a significant impact on the monetary accounts of both the countries that initiate the transactions and those that receive them. Since these transactions are not officially recorded, remittances from one country to another are not recorded as increases in the assets of one country or liabilities of the other. On the other hand, since both the senders and receivers of these funds do not pay taxes, their activities have important consequences on tax revenues. Many times these transactions contribute to capital flight, money laundering and terrorist financing.

The economic authorities cannot accurately determine the volume of money transferred, but based on estimates derived from the balance of payments and immigration data, it is assumed that billions of dollars are involved. Despite the fact that hawala is prohibited in some countries, it is impossible to exercise any kind of effective control over TIF systems due to their simplicity and anonymity.

Fonts

• Hawaii How does this informal transfer system work? Should it be regulated?Mohammed El-Qorchi.
• Finance and DevelopmentDecember 2002. Quarterly publication of the International Monetary Fund.
• Hawaii. An Informal Payment System and Its Use to Finance Terrorism, by Sebastian R. Müller (Broschiert - Dez. 2006), ISBN ISBN 3865506569, ISBN 978-3865506566