Lessons of Hawala

At least since the eighth century there has existed a kind “banking” system called Hawala or Hundi, which is used mostly as a means of transferring wealth (funds) from one place to another. This banking system which thrives to this day defies most ideas of what makes social systems work correctly.

How Hawala Works

Hawala is a totally informal system consisting of a world-wide network of independent agents (brokers) called Hawaladars. When someone wants to send a sum of money to a recipient in another city, they contact their local Hawaladar with whom they deposit the money to be transfered, providing the identity of the intended recipient. There is a small fee for the transaction.

The local Hawaladar then contacts a Hawalader in the city where the recipient lives with the information about the intended transfer. The Hawaladar in the recipient’s city delivers the specified sum of money (minus a small commission) to the reciepient.

No actual money is transferred from one Hawaladar to another, and each Hawaladar keeps ruthlessly accurate records of all transactions. There are no contracts of any kind between Hawaladars and all transactions are made on the basis trust, and the integrity of each Hawala broker.

Every so often, Hawala brokers will settle any differences in the balances of their books.

Why Does It Work?

Though some countries have tried to regulate Hawala, it has for the most part remained completely unregulated for centuries. Though there is no regulation, it is a totally dependable system, because every Hawaladar depends completely on his unquestioned reliability and honesty for his success.

It is because Hawala is both unregulated, yet reliable, that it is in such great demand. It is the advantages of Hawala sytem that makes it a total success.

• Transactions are totally anonymous. Hawala brokers to not keep records of who sends or receives funds, only of the financial relationships with other Hawala brokers.

• Funds transferred are not subject to official exchange rates, government transfer limits, taxes, or any other govrnment regulations.

• Transfers are much faster than banking systems, because nothing is actually moved from one place to another.

• Transfers are much less expensive than those made through a banking system.

How Hawala Illustrates Individual Freedom

Hawala is a world-wide multi-billion dollar business which is neither regulated or sanctioned by any government. Most governments are opposed to the idea of Hawala, of course, but attempts to regulate it, have so far, been totally unsuccesful.

One supposed accusation of Hawala that governments try to put over is that it is used for, “money laundering,” which means money hidden from the government (which it is therefore unable to confiscate), or money earned by some means forbidden by govrnment.

What the success of Hawala illustrates is that one can be free to use and run a business successfully, even when government totally opposes it. The real secret of that success consists of two characteristics of those who are in the business: 1. total integrity, and 2. privacy.

You will not see or hear any advertisements for your local Hawala broker. In fact, most people probably have never heard of Hawala. Most people would be afraid to use it, even if they knew about it. The success of Hawala does not depend being widely known, and caters only to that small percentage of the population that desires the kind of financial privacy and security only Hawala can provide and, for them, a Hawala broker is never difficult to find.

The Hawala broker does not carry any kind of insurance, nor is there any kind of “official” legitimization of his agency—he is neither licensed or sanctions by any official body. Your assurance that your money is safe with a Hawaladar, is the fact that he is a Hawaladar, and could not be if he were not totally reliable.