Hawala and Other Informal Value Transfer Systems: How to Regulate Them?

Abstract

Since the September 2001 attacks in the USA, ‘terrorism’ has leapt to the top of the Western political agenda. Within this context, as soon as the word ‘hawala’, in particular, was uttered in Congress, lawmakers, policy think-tanks and the media turned their attention to what they defined as a financial tool for terrorism. This knee-jerk response to hawala may have serious effects on age-old methods employed by Asian expatriates remitting funds to their families. Thus it is important to understand some of the basic facts about hawala: who are the clients, how much they are charged, why they do not use banks, the settlement processes involved, the division of labor, and so on. This paper offers a summary of the mechanics and settlement processes in hawala networks. It concludes with some policy implications.