Hawala is a money-transfer system based primarily in Asia, Africa and the Middle East, based on independent brokers who phone one another and say, "I'm holding so much money in such and such a currency, please transfer an equivalent sum in local funds to such and such a person." The settlements are based on the honor system, and by some accounts, the network has its origins in the Silk Road. The system functions even in places where the rule of law and other elements normally considered crucial to a a functional financial system have collapsed.
The unique feature of the system is that no promissory instruments are exchanged between the hawala brokers; the transaction takes place entirely on the honor 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. No records are produced of individual transactions; only a running tally of the amount owed one broker by the other is kept. Settlements of debts between hawala brokers can take a variety of forms, and need not take the form of direct cash transactions.
In addition to commissions, hawala brokers often earn their profits through bypassing official exchange rates. 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 distortive exchange rate regulations (as has been the case for many typical receiving countries such as Pakistan or Egypt) or when the banking system in the receiving country is less complex (e.g. due to differences in legal environment in places such as Afghanistan, Yemen, Somalia).
Furthermore, the transfers are informal and not effectively regulated by governments, which is a major advantage to customers with tax, currency control, immigration, or other legal concerns. For the same reasons, governments do not favor the system, and accusations have been made in recent years that terrorist funding often changes hands through hawala networks.
Alex Wood is an addict but won’t give up his smartphone. But he has five strategies for limiting its control over him: “I used to wake up tired. My body would ache and my head felt sore, like waking up with a hangover. Finally, I took control, like attending an AA class for addicts, I […]
We just got the Sport model of the EPIKGO hoverboard at my office. Besides being terribly chic, it’s apparently bulletproof.
Ok, it’s not just solar powered. It’s also an anti-theft, waterproof marvel that keeps my phone’s power bar from ever getting into the red.Sure the idea seems obvious now – tuck a gigantic solar powered battery pack into an exposed slot and turn the wearer into a walking energy harvester. Simple maybe, but I didn’t […]
Even the most expensive pair of hi-fi headphones can’t match the feeling of bass rumbling through your body at a live show. That’s why music aficionados designed The Basslet, an accessory that reproduces that sensation from your wrist. Does it make your whole body shake with deep subs? Not really, because that would be terrifying, but […]
They probably just sleep a lot. But still, you can remotely keep an eye on them when you’re at work and missing them deeply with this HD monitor from Kodak.If you have a new puppy that destroys everything in sight, or you just want to be a little more security-conscious, this WiFi camera is a […]
Thinking of a business idea is the easy part. Doesn’t even have to be a “good” idea, you can still get people to throw money at a non-existent venture, but to do that you need to at least have something even resembling a viable business plan. Why doesn’t anyone do it then? Because building that semi-viable […]