Product Code Database
Hawala or hewala ( ḥawāla, meaning transfer or sometimes trust), originating in India as havala (), also known as havaleh in Persian language, and xawala or xawilaad in Somali language, 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. The system requires a minimum of two hawaladars that take care of the "transaction" without the movement of cash or telegraphic transfer. While hawaladars are spread throughout the world, they are primarily located in the Middle East, North Africa, the Horn of Africa and the Indian subcontinent. Hawala follows traditions, but its use is not limited to Muslims.
It has been speculated that "Hawala" itself influenced the development of the agency in common law and in civil laws, such as the aval in French law, the aval in Portuguese law, and the avallo in Italian law. Some legal historians have suggested possible parallels between medieval European practices such as the aval and Islamic legal institutions like ḥawāla. Badr notes, however, that similarities and historical trade contacts do not in themselves demonstrate legal borrowing, and that such claims remain unproven. The transfer of debt was "not permissible under Roman law but became widely practiced in medieval Europe, especially in commercial transactions", potentially borrowing from hawala. Agency was also "an institution unknown to Roman law" as no "individual could conclude a binding contract on behalf of another as his agent". On the other hand, Islamic law and the later common law "had no difficulty in accepting agency as one of its institutions in the field of contracts and of obligations in general". The claims about the Islamic origins of hawala have later been challenged by Cinar.
Hawala generally works as follows:
The unique feature of the system is that no promissory note 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.
Informal records are produced of individual transactions, and a running tally of the amount owed by one broker to another is kept. Settlements of debts between hawala brokers can take a variety of forms (e.g., goods, services, properties, transfers of employees, etc.), and need not take the form of direct cash transactions.
In addition to commissions, hawala brokers often earn their profits through bypassing official . Generally, the funds enter the system in the source country's currency and leave the system in the recipient country's currency. As settlements often take place without any foreign exchange transactions, they can be made at other than official exchange rates.
Hawala is attractive to customers because it provides a fast and convenient transfer of funds, usually with a far lower commission than that charged by banks. Its advantages are most pronounced when the receiving country applies unprofitable exchange rate regulations or when the banking system in the receiving country is less complex (e.g., due to differences in the legal environment in places such as Afghanistan, Yemen, and Somalia). Moreover, in some parts of the world, it is the only option for legitimate fund transfers. It has been used even by aid organizations in areas in which it is the best-functioning institution.
|
|
