havales

A havale is a traditional informal value transfer system that operates outside of formal banking channels. It originated in the Indian subcontinent and is still widely used in South Asia and the Middle East. The system relies on trust and a network of brokers who facilitate the transfer of money from one location to another without physically moving the currency.

The process typically involves a person wanting to send money depositing it with a havaladar (broker) in one location. This havaladar then contacts another havaladar in the destination city or country. The second havaladar, who has received instructions and knows the amount, pays the recipient from funds they already hold locally, often through a prior transaction or a pre-arranged agreement. No money actually crosses borders or travels long distances; the exchange is settled later between the brokers.

Havale systems are often used for remittances by expatriate workers sending money back home, as well as for legitimate business transactions. However, due to their unregulated nature, havales can also be exploited for illicit activities such as money laundering and the financing of terrorism, making them a subject of concern for financial regulators worldwide. Despite these concerns, the efficiency and lower costs associated with havales continue to make them a popular choice for many individuals and businesses.