The Hawala (value transfer) System [1116x604 - 79KB]

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The Hawala (value transfer) System [1116x604 - 79KB] (pic8.co)

https://web.archive.org/web/20231224153408/https://en.wikipedia.org/wiki/Hawala

Heard of this for the first time today. Quite interesting that a largely hidden parallel money or value transfer system exists and that it is based completely upon the honor system.

Would be interesting to hear stories of what happened to cheaters in the past.

Hawala or hewala (Arabic: حِوالة ḥawāla, meaning transfer or sometimes trust), originating in India as havala (Hindi: हवाला), also known as havaleh in Persian, and xawala or xawilaad in Somali, is a popular and informal value transfer system based on the performance and honour of a huge network of money brokers (known as hawaladars). They operate outside of, or parallel to, traditional banking, financial channels and remittance systems. ... Origin The hawala system originated in India.[4] In 2003 Hawala as a legal concept was documented, finding evidence of Hawala reaching back to 1327, in a publication by Matthias Schramm and Markus Taube, with the title "Evolution and institutional foundation of the hawala financial system". ... How it works In the most basic variant of the hawala system, money is transferred via a network of hawala brokers, or hawaladars. It is the transfer of money without actually moving it. In fact, a successful definition of the hawala system that is used is "money transfer without money movement". According to the author Sam Vaknin, there are large hawaladar operators with networks of middlemen in cities across many countries, but most hawaladars are small businesses who work at hawala as a sideline or moonlighting operation.

The figure shows how hawala works: (1) a customer (A, left-hand side) approaches a hawala broker (X) in one city and gives a sum of money (red arrow) that is to be transferred to a recipient (B, right-hand side) in another, usually foreign, city. Along with the money, he usually specifies something like a password that will lead to the money being paid out (blue arrows). (2b) The hawala broker X calls another hawala broker M in the recipient's city, and informs M about the agreed password, or gives other disposition of the funds. Then, the intended recipient (B), who also has been informed by A about the password (2a), now approaches M and tells him the agreed password (3a). If the password is correct, then M releases the transferred sum to B (3b), usually minus a small commission. X now owes M the money that M had paid out to B; thus M has to trust X's promise to settle the debt at a later date.

The unique feature of the system is that no promissory instruments are exchanged between the hawala brokers; the transaction takes place entirely on the honour system. As the system does not depend on the legal enforceability of claims, it can operate even in the absence of a legal and juridical environment. Trust and extensive use of connections are the components that distinguish it from other remittance systems. Hawaladar networks are often based on membership in the same family, village, clan or ethnic group, and cheating is punished by effective excommunication and the loss of honour, which lead to severe economic hardship.

https://web.archive.org/web/20231224153408/https://en.wikipedia.org/wiki/Hawala Heard of this for the first time today. Quite interesting that a largely hidden parallel money or value transfer system exists and that it is based completely upon the honor system. Would be interesting to hear stories of what happened to cheaters in the past. >Hawala or hewala (Arabic: حِوالة ḥawāla, meaning transfer or sometimes trust), originating in India as havala (Hindi: हवाला), also known as havaleh in Persian, and xawala or xawilaad in Somali, is a popular and informal value transfer system based on the performance and honour of a huge network of money brokers (known as hawaladars). They operate outside of, or parallel to, traditional banking, financial channels and remittance systems. ... Origin The hawala system originated in India.[4] In 2003 Hawala as a legal concept was documented, finding evidence of Hawala reaching back to 1327, in a publication by Matthias Schramm and Markus Taube, with the title "Evolution and institutional foundation of the hawala financial system". ... How it works In the most basic variant of the hawala system, money is transferred via a network of hawala brokers, or hawaladars. It is the transfer of money without actually moving it. In fact, a successful definition of the hawala system that is used is "money transfer without money movement". According to the author Sam Vaknin, there are large hawaladar operators with networks of middlemen in cities across many countries, but most hawaladars are small businesses who work at hawala as a sideline or moonlighting operation. > The figure shows how hawala works: (1) a customer (A, left-hand side) approaches a hawala broker (X) in one city and gives a sum of money (red arrow) that is to be transferred to a recipient (B, right-hand side) in another, usually foreign, city. Along with the money, he usually specifies something like a password that will lead to the money being paid out (blue arrows). (2b) The hawala broker X calls another hawala broker M in the recipient's city, and informs M about the agreed password, or gives other disposition of the funds. Then, the intended recipient (B), who also has been informed by A about the password (2a), now approaches M and tells him the agreed password (3a). If the password is correct, then M releases the transferred sum to B (3b), usually minus a small commission. X now owes M the money that M had paid out to B; thus M has to trust X's promise to settle the debt at a later date. > The unique feature of the system is that no promissory instruments are exchanged between the hawala brokers; the transaction takes place entirely on the honour system. As the system does not depend on the legal enforceability of claims, it can operate even in the absence of a legal and juridical environment. Trust and extensive use of connections are the components that distinguish it from other remittance systems. Hawaladar networks are often based on membership in the same family, village, clan or ethnic group, and cheating is punished by effective excommunication and the loss of honour, which lead to severe economic hardship.

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