View source for Hawala (Middle East, India and Pakistan)

{{infobox 
| nameofpractice =Hawala
| flagemoji =🌏
| definition =Informal system of money exchange prevalent throughout South Asia and the Middle East
| location =Middle East, India and Pakistan
| imagemap =
| clusters =
[[:Category:Market|Market]] – [[:Category: Functional ambivalence| Functional ambivalence]] – [[:Category: System made me do it| System made me do it]] – [[:Category: Survival| Survival]] – [[:Category: Informal entrepreneurship| Informal entrepreneurship]] 
| categories =
[[:Category:Middle East|Middle East]] – [[:Category: MENA region| MENA region]] – [[:Category: India| India]] – [[:Category: Pakistan| Pakistan]] – [[:Category: South Asia| South Asia]] – [[:Category: Money| Money]] – [[:Category: Cash| Cash]] – [[:Category: Transfer| Transfer]] – [[:Category: Money exchange| Money exchange]] – [[:Category: Triangle| Triangle]] 
| authorofpiece =Nauman Farooqi
| authorinstitution =Mount Allison University, Canada
| authorwebsite =[https://ca.linkedin.com/in/mnfarooqi Profile page on LinkedIn]}}
<big>'''By Nauman Farooqi, Mount Allison University, Canada'''</big>
[[Category:Market]] 
[[Category: Functional ambivalence]] 
[[Category: System made me do it]] 
[[Category: Survival]] 
[[Category: Informal entrepreneurship]] 
[[Category:Middle East]] 
[[Category: MENA region]] 
[[Category: India]] 
[[Category: Pakistan]] 
[[Category: South Asia]] 
[[Category: Money]] 
[[Category: Cash]] 
[[Category: Transfer]] 
[[Category: Money exchange]] 
[[Category: Triangle]] 
[[Category:Entry]] 
[[Category: Volume 2]] 
{| class="wikitable"
|- 
|style="font-size:1.1em;"| An informal value transfer system operating through a large network of money brokers that allows money to be transferred from one geographic location to another. The ''hawala'' system operates outside of more traditional financial and banking channels, and is based mainly in the Middle East, Indian subcontinent and parts of Africa.

In Arabic, the root h-w-l signifies ‘change’ or ‘transformation’. The word ''hawala'' is derived from this root and is defined as a bill of exchange or promissory note that can be used as ''hawala safar'' or a traveller’s cheque <ref>Jost, P. and  Sandu, H. S. 2000.  The Hawala alternative remittance system and its role in money laundering.  Interpol General Secretariat, Lyon.</ref>. The word permeated into Hindi (national language of India) and Urdu (national language of Pakistan), retained its original meaning but acquired the additional connotations of ‘trust’ and ‘reference’. This reflects the basic principles on which the system operates. A ''hawala'' dealer is described as a ''hawaladar''.<ref>Jost, P. and  Sandu, H. S. 2000.  The Hawala alternative remittance system and its role in money laundering.  Interpol General Secretariat, Lyon.</ref>
|}
[[File:Hawala Market Afghanistan.jpg|400px|thumb|left|]]
An alternative term is ''hundi'', a word which is etymologically rooted in Sanskrit and means ‘to collect’. This meaning is synonymous with promissory note, bill of exchange, or ''hawala''. A ''hundi'' operator is referred to as a ''hundiwala''.<br><br>Padayachee and MorrelL define ''hundi'' as: 
<blockquote>“A kind of bill of exchange or written order for payment that its drawers used much in the same way that the Americans used checks to draw on their checking accounts. In order to draw a Hundi, a client had to open up an account and maintain a correspondence relationship with a [private] banker.”<ref>Padayachee, V., Morrell, R. 1991. ‘Indian merchants and dukawallahs in the natal economy’. Journal of South African Studies, 17 (1): 71-102.</ref></blockquote>

Essentially, ''hawala'' and ''hundi'' have the same meanings and are used interchangeably, especially now that the system has gained international notoriety. However, ''hawala'' is an Arabic term while ''hundi'' is its Indian and Pakistani variant. It has been suggested that ''hundi'' and ''hawala'' have amalgamated into one network and their distinctions have been dissolved <ref>Jost, P. and  Sandu, H. S. 2000.  The Hawala alternative remittance system and its role in money laundering.  Interpol General Secretariat, Lyon.</ref>.

Every year billions of dollars are transferred across countries and continents using Informal Value Transfer Systems (IVTS).  The Financial Crimes Enforcement Network (FinCEN) defines IVTS as, “Any system, mechanism, or network of people that receives money for the purpose of making the funds or an equivalent value payable to a third party in another geographic location, or not in the same form.”  ''Hawala'' is one of the key forms of IVTS.   It is estimated that every year US$100 billion to US$300 billion flow through the Informal Value Transfer Systems <ref>Buencamino, L. and Gorbunov, S. 2002.  Informal money transfer systems: Opportunities and challenges for development finance.  Discussion Paper of the United Nations Department of Economics and Social Affairs, Discussion Paper No. 26.  Obtained through the Internet: http://www.un.org/esa/desa/papers/2002/esa02dp26.pdf, [accessed 10/4/2009]</ref>.

[[File:Hawala Market Photo.jpg|400px|thumb|right|Stacks of cash in a Hawala market in Afghanistan]]
Informal Value Transfer Systems were established means of transferring valuables and money long before any of the formal methods were conceived. However, since the growth of formal value transfer systems, informal systems have operated in the shadows, albeit maintaining a devoted following. Many of today’s IVTS originated among ethnic Asian peoples who based codes of conduct for value/money transfer on mutual trust within groups and individuals. The various systems derived their names from the geographical locations and the ethnicity of the groups that practised them. Passas has summarised some of the more common names for IVTS practices in different parts of the world:<ref>Passas, N. (1999). Informal value transfer systems and criminal organizations: A study into so-called underground banking networks. Netherlands Ministerie Van Justice, The Hague, Netherlands. Obtained through the Internet: http://www.minjust.nl:8080/b_organ/wodcpublications/ivts.pdf [accessed 1/5/2003].</ref>

*Hawala (trust, reference, exchange; The Arabic root h-w-l means “to change” or “to transform”) — India
*Hundi (commonly translated as trust; means bill of exchange or promissory note; comes from a Sanskrit root meaning “to collect”) — Pakistan
*Fei ch’ien (flying money) — Chinese
*Phoe kuan — Thailand
*Hui k’uan (to remit sums of money) — Mandarin Chinese
*Ch’iao hui (overseas remittance) — Mandarin Chinese
*Nging sing kek (money letter shop) — Tae Chew and Cantonese speaking groups
*Chop shop — non-Chinese use this term for one of the Chinese methods
*Chiti banking — refers to the “chit” used as receipt or proof of claim in transactions introduced by the British in China (short for "chitty", a word borrowed from the Hindi “chitthi”, signifying a letter, document or mark).
*Hui or hui kuan (association) — Vietnamese living in Australia
*Stash house (for casa de cambio) — South American systems

A simplified model of a hawala transaction is provided by El-Qorchi:<ref>El-Qorchi, M. 2002.  ‘Hawala: How does this informal funds transfer system work and should it be regulated?’ Finance and Development of the World Bank, 39 (4): 31-33</ref>
*Customer A (CA) wishes to send money to customer B (CB) 
*CA visits hawaladar A (HA) in country A 
*HA receives money to be remitted (Q) to CB plus a service fee from CA
*CA receives code of authentication and passes it on to CB
*HA then instructs hawaladar B (HB) in country B to remit Q to CB
*CB discloses the code to HB who then presents CB with the funds