Hawala: transferring money without actually moving it | Hacker News Reader

Hawala: transferring money without actually moving it

en.wikipedia.org

58 pointsRod19 comments

The word is quite common in India. Here's a summary: Hawala transfers are mostly done by the underworld people (read gangsters, mafia, mob etc.) The most common application of hawala is in betting. In India, betting on sports is illegal but there is a huge underground network that takes bets on sporting fixtures(cricket being the fav.). To place a bet you have to know someone who knows a bookie, you speak to the bookie, ask him what the going rates are and place your bets without paying any initial money. If you lose you will be told where to deliver the money, usually it'll be to an agent in your city. After this agent has collected money from all losing parties, he is informed of all the people who won their bets in that city, he then transfers the same money to them, the difference between the two is the profit. This is just one application. Here hawala is mostly organized money laundering, reading the above comments I am surprised to see legal systems of practicing hawala.

At least in India, most forms of Hawala are illegal, as the money easily escapes the tax net and can be quite helpful in transferring black money. But that doesn't stop the practice from being quite rampant, and from what I know from a friend, a surprisingly dependable way of transfer, in fact.

I'm arabic and I can read this word!

In Tunisia, they offer this service in the Mailling System. You deposit money to the nearest office and a fee of 1.5 DT (around $1) and you mention the person to get it (with a code).

The other person also should go to the nearest office and can get the money using his identity card and the code.

It made things easier, as here people can't easily get Credit Cards.

Hawala is based on the islamic financial system which does not allow lending with interest, instead the lender must participate in the risk of the business, taking his share of profit or loss. Under a form of hawala it was possible to take a cheque from Morocco and have it cashed in China, long before such a system was available in the West.

Yeah, hawala evolved into giros (or postal transfers) in most of the western world.

I don't know a lot about macroeconomics and this is a little off topic but isn't the honour system principle what nations work with and how trade deficits etc. emerge?

Yeah, Hawala is pretty much like distributed clearing houses. Most small businesses in India that I know use some form of Hawala (or Angadia).

This is essentially identical to what happens when I put cash in the ATM at 7-11 with instructions to wire with my local bank to a bank in Tokyo which wires it to a bank in Washington which wires it to Bank of America in St. Louis so that I can move it into my IRA.

The yen doesn't physically get shipped to America, either.

"The yen doesn't physically get shipped to America, either."

yeah I don't get the "without moving it" part either. With minor exceptions money doesn't physically move in the mainstream financial system either. There are many things that define hawala but "transfering money without moving it" isn't one.

Hawala flourishes in India because 85% of Indians do NOT have bank accounts. http://tinyurl.com/cj25dz

Most of us know this service as Western Union (and their ilk).

Interesting historical basis, though.

India's Prime-Minister-In-Waiting, Advani is accused in Hawala scam. http://en.wikipedia.org/wiki/Hawala_scandal

That must some good crystal you are staring into..

The election started only 2 days back and will go on till may 13.

Advani is a PM aspirant, not a PM-in-waiting.

http://www.rediff.com/news/2006/dec/10advani.htm

It's good to know not all banking institutions were destroyed :P

In seriousness, I wonder how much the credit crisis affected Hawala.

I don’t see how credit crisis affect would affect the system other than that people have less money to send around.

exactly. However, I was thinking more that has the credit crisis affected enough individuals for it to affect this system as well. Meaning, do less people use this now than before? It also makes me wonder, do some people trust this system more than the well established one that most people use?

The difference is that you gave your money to the banks and expected them to keep it safe. Instead, they took your deposit and lent it to underpaid Americans to buy overpriced houses, in the hope of making lots of money for themselves. With Hawala, the money is quickly picked up at the other end and not lent out to whoever promises to pay the highest interest rate.

Many banks did not engage in the foolish investment practices we've been hearing about, and yet their lending rates were substantially affected by the credit crisis due to the ensuing market conditions: higher costs of borrowing, higher perceived risks, less overall liquidity, lower trust in other parties, etc.

No one is completely isolated from the effects of a credit crisis.

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