Hawala

Hawala is an informal value‑transfer system that enables individuals to move money across borders without the physical movement of cash or the use of conventional banking channels. Originating in South Asia and the Middle East, the term is derived from the Arabic word hawāla, meaning “transfer” or “trust.” The system operates through a network of Hawala dealers, or hawaladars, who maintain personal relationships and rely on mutual trust and extensive family or community ties.

A typical transaction begins when a client gives a hawaladar in one country the amount to be transferred, along with the name of a recipient in another country. The sender’s hawaladar contacts a counterpart in the destination country, instructing them to deliver the equivalent sum, minus a fee, to the recipient. Settlement between the two dealers may occur later through various means, such as trade‑based offsets, physical cash movements, or electronic transfers, often without any formal documentation.

Hawala is valued for its speed, low cost, and ability to serve populations lacking access to formal banking services, including migrant workers and residents of conflict‑affected regions. It also offers a degree of anonymity, which can be attractive for legitimate privacy concerns as well as for illicit activities. Consequently, many governments have sought to regulate or curb the practice. In the United States, United Kingdom, and several other jurisdictions, hawala operators are required to register, maintain records, and report suspicious transactions under anti‑money‑laundering statutes. Enforcement, however, remains challenging due to the system’s reliance on personal trust rather than written contracts.

Critics argue that the opacity of hawala facilitates money laundering, terrorist financing, and tax evasion, while proponents emphasize its role in remittances, financial inclusion, and cultural traditions. The balance between regulation and preserving its social utility continues to shape policy debates worldwide.