The Hawala system is an informal funds transfer system with a vast gobal reach, most prevalent in South Asia, the Middle East, and some parts of Africa.
The increase in immigration levels in recent years, and consequently, migrant worker remittances to developing countries, has resulted in a resurgence of Hawala. Hawala systems remain popular because they provide financial services to remote rural areas where formal banking arrangements do not exist. Furthermore, they are more expedient and convenient; offer competitive exchange rates; and are anonymous and require no documentation.
Hawala transactions are underpinned by a deep sense of trust, fostered through religious, national, ethnic, tribal, and linguistic links. Hawala brokers often work within their own community which holds them to account. While there is little evidence that the system is considered a global ‘Islamic’ institution, it does seem to incorporate the Islamic prohibition against usury by not charging interest.
In light of these factors, experts argue that any intervention to regulate Hawala systems must understand the social, cultural, ethnic, and economic factors from the perspective of the people who use hawala system, as well as its potential for illegal usage.
