Lawlessness and economic governance: the case of hawala system in Somalia

Abstract

PurposeThe purpose of this paper is to describe how informal money transfer system known as hawala works in Somalia. The paper also intends to contribute to the current debate on the lawlessness and economics of governance.Design/methodology/approachThe paper uses an institutional approach and a simple game theoretical model. The author interviewed agents and informants of the hawala system but mainly relied on surveying the literature.FindingsTo support economic relationships and increase the future cost of hold ups by their agents, the hawala companies, with the help of two main social institutions, use seven main strategies.Research limitations/implicationsA research on contract enforcement should involve with the contract partners (i.e. firms and agents) and third part enfocers (i.e. social groups). However, the author findings are based on surveying the existing literature and interviewing on a small number of agents and other informants in the West. Further, research should examine the practical experience of owners/managers of the firms and the traditional/religious leaders.Practical implicationsEstablishing future formal commercial laws in Somalia, currently functioning informal mechanisms should be taken into great consideration.Originality/valueThis paper is one of very few research studies on the hawala system. Further more, little if any attention has been paid on economic governance aspect of the system by these studies. According to the authors' knowledge the paper is the only one that considers economic governance with the case of complete picture of statelessness in our contemporary world.