Hundi

A hundi is a traditional negotiable instrument used in the Indian subcontinent for remittance and trade finance. It operates as an informal credit or money-transfer device that predates modern banking and is closely associated with the hawala system. A hundi can take the form of a promissory note or a bill of exchange, payable to a bearer or to a specified recipient, and is typically settled through a network of brokers who transfer value across long distances without physical money movement, relying on trust and reciprocal obligations.

Originating in medieval and early modern commerce, merchants used hundi to finance trade, remit funds across regions, and settle debts when formal banking was absent or slow. It gained traction in commercial hubs and among migrant workers who needed to send money home quickly.

In practice, a sender gives funds to an agent who issues a hundi; the recipient, at another location, can present the instrument to another agent who would honor it with equivalent value, often in local currency, at a later time. The underlying mechanism is informal and not necessarily tied to a central clearinghouse.

Hundis are not generally recognized as legal tender; their validity depends on contract law and the terms of the instrument. In modern times, many jurisdictions regulate informal remittance channels and discourage use of hundis for illicit activities, while enforcement and penalties vary.

Today, hundis persist in some informal economies and among certain communities as a faster or cheaper alternative to formal banking for cross-border remittance and trade, but they pose risks including lack of formal dispute resolution, credit risk, currency risk, and potential for money laundering or tax evasion. They are often linked with hawala and other trusted-net remittance networks.