Understanding Hawala: Informal value transfer system

January 5, 2021

You may wonder what Hawala is, and is it safe? Regardless of your question, this blog will help you understand all aspects of the Hawala concept and how you may take the best part of Hawala and transfer money overseas. Legally. At a fair price. But let's first understand what it is and how the Hawala money system works.

Hawala: Informal fund transfer system 

It has a vast global reach and is mostly prevalent in South Asia, the Middle East and some parts of Africa. Ever increasing number of migrant workers leading to increased remittances to their home countries (primarily developing countries) has resulted in a reinvigoration of Hawala. Informal fund transfer systems remain popular in rural areas where formal banking arrangements do not exist. Why do people mostly opt for the Hawala system? Well, Hawala services are more expedient, convenient and offer competitive exchange rates; also it is anonymous and requires no documentation.

Transactions held through Hawala are underpinned by a deep sense of trust. It is fostered through religious, national, ethnic, tribal and linguistic links and mostly Hawala brokers work within their own community, which makes them trustworthy.

Experts argue that any intervention to regulate the Hawala system needs to understand the social, cultural, ethnic and economic factors and its potential for illegal usage.

Meaning of Hawala system in today's market

It is an ancient system of transferring money and can be defined as a money transfer process which does not require a traditional banking system and requires at least two Hawala dealers (Hawaladars) who take care of transactions.

People who want to send money abroad contact Hawala dealers. They have to give money plus commission and the information of the beneficiary. The person will receive a unique code from a Hawala dealer. Meanwhile, the dealer contacts the Hawala dealer of the recipient country and the dealer of abroad country will give an amount to the designated person who has to reveal his code in order to prove he is the right beneficiary. 

Why do Hawala transactions exist?

The reasons for the existence of Hawala transactions are many. Immigrants use the Hawala system of money transfer as the most preferred one and vice versa. The question is, why not use a conventional banking system and why choose Hawala? Although the traditional banking system is cheap and safer, it charges exorbitant fees. Hawala is cheap, fast and less transparent.

The FATF (Financial Action Task Force) published a report on Hawala in 2013. This report is based on a questionnaire answered by individuals in 22 countries on why Hawala is used. Let's summarise the reasons based on the reports 

  • Cheaper Money Transmission
  • Faster Money Transmission
  • Cultural Preference
  • Lack of banking access in the recipient or sending country
  • Higher trust in Hawala system because of community grounds 
  • Avoiding Currency Controls
  • Avoiding Law Enforcement Agencies
  • Tax evasion
  • Transfer and mask criminal actions

The key role of a Hawala dealer in the whole system

There is no physical movement of cash; the key people in the whole transaction are the Hawala brokers. The entire system is trust-based. They maintain an informal journal to keep a record of all transactions. Debt is settled by brokers/dealers in different ways. Well, Hawala brokers are neither licensed nor supervised.

Is N2Xpress a Hawala broker?

Banks and money transfer agents or service providers often give you poor exchange rates to make extra profits. Hawala, with its illegal money system leaves users exposed to more chances of fraud and cheating or not-so-great funding activities.

N2Xpress is different and works on a unique concept where you can save more and do more with money. Our smart new technology helps you skip hefty transfer fees and connect you with your loved ones globally. N2Xpress also gives you the real exchange rate, the same you find on google and instant money transfer facility.

You must be thinking, what is so good about N2Xpress? 

N2Xpress takes what’s good about Hawala and merges it to strong, reliable money transfer and banking regulations that keep your money secure. N2Xpress uses the P2P system to send money abroad and transfer directly to the recipient's bank account. However, unlike Hawala, N2Xpress is not informal, nor exists outside banking system. It is licensed under money laundering regulations and regulated by the Financial transactions and reports analysis centre of Canada (FINTRAC).

N2Xpress only accepts money from the bank accounts belonging to the sender, and transfers are made using debit/credit cards or EFT. N2Xpress sends this money directly to the recipient's bank account. The entire process is governed under a strict compliance process and regulated by financial laws.

Though Hawala works as it avoids the banking system, the other side of the coin says it is unsafe because it avoids banking systems (which since the financial crash of 2008, many people now see it with suspicion). N2Xpress chooses the best part and features from Hawala, it avoids the expensive, traditional banking method and transfers money instantly globally in the recipient's account. It cuts down on international fees and prevents the misuse of money sent and received.

Send more than money.