Hawala
Candlefocus EditorHawala works as a peer-to-peer money transfer service. It involves two parties, an intermediary (a Hawala broker) and a sender. The sender pays money to the Hawala broker, and the broker in turn pays money to the party that the sender wanted to send money to. The sum the sender pays to the broker is usually substantially less than the sum the receiver gets – this is the broker’s fee. It is also called an "invisible transaction" as no official records or proof of the transaction exists.
Hawala networks are formed when several Hawala brokers come together to form a network. Senders from one country can access money from another country using this network.
Hawala also has important implications for the financial services industry today. It offers innovative ways to access financial services for people who may not be able to access traditional financial services such as bank accounts. This is particularly useful for people in developing countries who don’t have access to banking services. Hawala networks can provide people with an alternative way to access remittances, savings, and even credit, as well as access to foreign currencies.
However, Hawala is not without its risks. Unlike banks and official money transfer services, Hawala is completely unsupervised. This means that there is no oversight or regulation, which can mean that there is increased opportunity for fraud and money laundering. As a result, Hawala has been made illegal in many countries, including India.
Overall, Hawala provides a unique service which is valuable for ex-pats and those without access to traditional banking services. The lack of regulation and oversight, however, can create risks for those who choose to use Hawala to transfer money. For this reason, it is important to be aware of the risks and take necessary precautions before using Hawala services.