Hawala System Research Articles

Premier Wallet: banking the unbanked population in Somalia

Learning outcomes Upon reading, analyzing and participating in the classroom discussion of this case study, students will be able to use the blue ocean strategy (mainly the Strategy Canvas tool) to analyze how companies establish their products as viable and the go-to solution for consumers; perform a competitive analysis for competitive products; learn how to use data from the case, including industry trends, to predict the future market position of products; and learn how to develop strategies for new products in the market. Case overview/synopsis Abdishakur M. Afrah, who served as the Head of Business Development at Premier Bank, oversaw a substantial banking portfolio, which included Premier Wallet – the first digital wallet in Somalia. This case study outlines Premier Wallet’s journey and its transformative impact on the banking sector. Owing to the mobile wallet, consumers could, for the first time, engage in purchasing, withdrawing cash, shopping online and topping up without needing a bank account at Premier Bank. This allowed for the financial inclusion of the unbanked Somali population. This case study also highlights the Wallet Send feature, a disruptive feature that challenged the prevalent Hawala system in Somalia. This feature enabled customers to send money across 110 countries via their smartphones, facilitating direct deposits to the mobile or bank accounts of their family and friends or to cash withdrawal points nearby. Despite these advanced features, Premier Wallet struggled with broader acceptance, hindered by a mere 9% internet penetration, the absence of a national identification (ID) system and stiff competition from WAAFI, a fintech application supported by Hormuud Telecom, Somalia’s leading telecommunications company. The case study also delves into the strategic decisions Afrah had to make to position Premier Wallet as the top mobile money option for consumers in Somalia. Complexity academic level This case study is suited for undergraduate-level courses. Supplementary materials Teaching notes are available for educators only. Subject code CSS 3: Entrepreneurship

“ISLAMIC STATE” IN KHORASAN - THE NEW CHALLENGE FOR AFGHANISTAN

The article analyzes so called Islamic State in Khorasan Province (ISKP) in Afghanistan and the challenges, which Taliban faced after they had come to the power. So, the article is a research of ISKP’s founding history, its activity and strategy, competition with the Taliban and relationship with IS central office. So called Islamic State in Khorasan Province was founded in 2015. It gathered the ex-members of Pakistani Taliban, Islamic Movement of Uzbekistan (IMU) and Afghan Taliban. In 2016, the group had about 6000 members. The aim of the group was the same of the IS central office - to restore the Islamic Caliphate on the territory including Afghanistan too. The name was taken from the historical region of Khorasan which included Afghanistan, Pakistan and part of Iran. IS central office saw Afghanistan as the main part of its influence. Therefore the organization decided to form its network in this country. It is very interesting to analyze the term Khorasan: Why the IS decided to use it as the name of the group? As some scholars think, Khorasan is connected to the geographical area and includes Afghanistan, Pakistan, Eastern parts of Iran, Western parts of India and former central Asian republics of the Soviet Union. Therefore, the name of ISKP points to its aim to create the Islamic State on this territory. But if we consider IS as the group, which tries to use all historical symbols for creating the Islamic Caliphate, it would be less reasonable to connect the term only to the geographical area. For Islamists Khorasan is linked to Islamic saying that Mahdi and Muslim army would come from Khorasan carrying black flags during the final apocalyptic struggle in Islam. This version is supported by Al-Qaeda and the so called Islamic State but not by moderate Muslims. By Iranian and Afghan narratives, the importance of Khorasan is connected to the historical figure Abd Ar-Rahman Ibn Muslim also known as Abu Muslim al-Khorasani who resisted against Arab dominated Umayyad dynasty. So for Afghanistan, the term Khorasan has the political meaning. Since 1747 the country has been positioning as the successor state of Khorasan sharing its glory. During Taliban time non-Pashtuns began to use this term to oppose the Pashtun domination of Taliban in Afghanistan. The history of the relationship between IS and Afghanistan has not begun with ISKP. In 2012 the information about participating Afghan fighters in Syria against Bashar Al-Assad regime was widespread. In 2014 IS leader Abu Umar al-Shishani appointed Qari Wali Rahman as IS representative in Afghanistan and Pakistan. So Qari was running the training camp in Qunar. A year later, in 2015 ISKP was founded in Afghanistan. Nowadays, ISKP includes 2000 fighters in Afghanistan, but according to several researchers the number is much higher. The group communicates with the central office via As-Siddiq which covers the Khorasan region including Afghanistan, Bangladesh, India, Sri Lanka, Maldives a the Central African Republic. The finances are given from different sources. The main source of the income comes from natural minerals extracted on the border between Afghanistan and Pakistan in the Nangarhar province. But in 2019 after the serious attacks on ISKP from Taliban and Afghan government, the group left this province. So ISKP lost this part of income, but it has also other sources such as financial support from IS central office and donations. There is no bank system in Afghanistan. So ISKP uses Hawala system for money transfer in the country. The Hawala network is very useful way for the fundraising which supports to fund terrorism. ISKP uses Nejaat social service organization in Kabul and Jalalabad for fundraising. Since US forces withdrawal from Afghanistan, Taliban has been controlling the Hawala system. Therefore ISKP has no longer ability to use it for fundraising. ISKP still remains as the main challenge for Taliban regime in Afghanistan. It is true, that after the repressions from Taliban and Afghanistan government, the number of ISKP members decreased, but the group has enough strength to organize different terrorist attacks in the country. During 2020-2021 ISKP organized 115 terrorist attacks, although the number is less than attacks organized in 2019-2020. The opinion that ISKP is the main threat for Afghanistan and Taliban was declared in UN Security Council report in 2022. According to the report, ISKP operated in Qunar and Nangahar provinces but its small cells and groups are widespread across the whole country. So Taliban needs the defined strategy to solve the challenges connected to ISKP activity in Afghanistan.

An Alternative Funding Theory – a Metatheory – for Afghanistan

The World Bank ceased operation after the Taliban takeover of Kabul, where posed sanctions by the United States made significant difficulties in processing international transactions due to the Central Bank’s restrictions on capital outflows. Unavailability of the fund and physical cash for running of health projects pushes the country into significant health and humanitarian crises. According to a contract between Global Fund and NGOs, the UNDP intended to transfer 80% of the fund in the first week of the month; however, NGOs could receive only 10% of the contract price and withdraw approximately 1.5% of the contract price in three weeks. The paper used a scoping review method to review all past and possible theories in the funding of the Afghanistan health system. The study considers a metatheory that involves funding mechanisms and theories, and feasible practices in the contexts of Afghanistan. We have found some main approaches in the humanitarian support projects since 1996. They are cash-based theory in all transactions in the absence of banking system, cash-based and banking theory during the transition and Islamic republic government, banking theory in the very last period through Afghanistan Reconstruction Trust Fund, and back to cash-based and hawala system under the current Taliban regime. The scoping review proposes using both banking and cash-based approaches. The theory suggests that donors transfer a certain amount of funds through bank transfer to the NGO, where NGOs also use transfers to procure necessary supplies and services. Meanwhile, it suggests that donors deposit (in cash) a certain amount of funds to the NGO to allow procurement at the provincial levels where local markets require money in exchange for their goods and services.

The Role of Informal Founds Transfer Systems in Money Laundering and Financing Terrorism: The Hawala System

Gayri Resmi Değer Transfer Sistemleri (Informal Value Transfer Systems-IVTS), fonların veya değerlerin belirli bir coğrafi bölgeyle ilişkisi olan kişisel bir ağ yoluyla bir bölgeden diğerine taşınmasına ilişkin finansal hizmetlerdir. IVTS dünya çapında yaygın bir sitemdir ve çeşitli meşru ve gayri meşru amaçlar için kullanılmaktadır. IVTS’lerin en yaygın türlerinden biri, kara para aklama ve terörizmin finanse edilmesiyle ilişkilendirilen ve dünya çapında geçerli bir ödeme yöntemi olan Hawala sistemidir. Başlangıçta Hawala ağları Asya'da yüzyıllar önce İpek Yolu boyunca seyahat eden tüccarlar için güvenli para transferleri sağlamıştır. Fakat 11 Eylül 2001'de ABD Dünya Ticaret Merkezi’ne yapılan terörist saldırılardan sonra Hawala uluslararası basında “terörizm için kurulmuş bir bankacılık sistemi”, bir “uluslararası yeraltı bankacılık sistemi” olarak tanımlanmıştır. Bu çalışmada Hawala’nın ortaya çıkışı ve istikrarını sağlayan yönetişim mekanizmaları açıklanmaktadır. Çalışmada bu sistemlerin meşru yönleri korunurken, yasadışı kullanımını sınırlandırmak için etkili düzenleyici politikaların nasıl geliştirilebileceğine odaklanılmaktadır.

The use of cryptocurrencies for hawala in the Islamic finance

This paper aims to evaluate where the application of new fintech solutions like blockchain and cryptocurrencies can be considered as an opportunity to build bridges between Islamic and western culture in order to create a trusted money transfer with low commission and a big transparency and trust. The research question is: Can an Hawala systems based on DLT technologies be considered compliant both with anti-money laundry regulations and with Sharia values? This is a conceptual paper relying upon an understanding of the literature in the fields of technology, sociology, anthropology, criminology and regulatory, as applied to the topic of Islamic practice known as Hawala and emerging new disruptive technologies like Distributed Ledger Technology. The research has been conducted by a literature reviewing on Scopus data base by searching the following keywords: Islamic finance, cryptocurrencies, hawala, stablecoin, globalcoin, money laundering, blockchain. The searching period was set on the last 10 years. The paper discusses some scenarios to define new fintech Hawala system in an evolving scenario of cryptocurrencies, social network commitments and different type of blockchain where it can be digitally transformed by using new fintech technologies while became compliance with anti-money laundering regulations with the respect of Islamic values. As practical implications, this paper could help to encourage researcher and entrepreneurs to evaluate and propose a digital transformation approach with the aim to maintain ancient tradition and, at the same time, apply new technology that improve the life of citizens. As social implications this paper expands upon the understanding of how new fintech solution can be easily be integrated in the real life by using common devices like a mobile phone to be used as wallet for the daily expenses and to receive money from relatives from western countries. The originality/value of this paper is that it covers the literature gap in the field of new fintech solutions applied to Islamic finance by providing a likely proposal by integrating popular tradition, regulations and new technologies. The research limitations and implications are related to that this is a conceptual paper; case studies haven’t been treated, so it is not able to say definitively if the outcomes discussed can be defined as an effective solution and can be developed in the real global society, in a future prospective it’ll be possible to continue to make researches in this field of application with fintech technologies and Islamic Finance.

Digital development for a progressive networked society

Digital development for a progressive networked society

Examining the use of electronic money and technology by the diaspora in international remittance system: A case of Somali remittances from Canada

AbstractThe diaspora, particularly through ICT‐enabled remittances, are an important lifeline to many in the developing world. This study aims to better understand the usefulness of ICTs in the role played by the remittance sending diasporans in developing countries' economic and social system. Through a mixed‐method approach, we explore the institution behind the Somali Hawala system and how it is enabled by technology. Guided by the question: What is the role of electronic money, technology, and the diaspora in the international remittance system? Using Somalia and the Somali diaspora, we create an inventory of the Hawala businesses based in the Canada gathered from secondary sources and online business listings. Next, surveys of 143 Somalis, who have remitted internationally in 2017, were conducted. We observed that social ties are strong motivators as to why individuals in Canada send money to people in Somalia. People who communicate less frequently were more likely to send less than $500. However, those who frequently communicate with their family members were more likely to send more than $500. Drawing on Social Network Theory and Altruism theory, we establish the role of ICTs in the Somali money transfer sector, confirming the crucial role served by ICTs in remittances.

CRIMINOLOGICAL FEATURES OF FINANCIAL OPERATIONS BY THE HAVALA SYSTEM

Based on the study of numerous foreign and domestic sources, the authors of this article determine the essence of financial transactions through the hawala system. It has been revealed that this system is historically determined in nature, it was used, first of all, in the countries of the Near East, Middle East and South Asia in foreign trade operations in the framework of various directions of the so-called Silk Road. This system is also practiced in our days, however, in a slightly modified form, since globalization processes fixed in recent decades throughout the world have influenced its transformation. However, in addition to traditional trading activities, hawala was often used in the criminal activities of various modern organized criminal groups (OCG), including radical Islamists. In this regard, the study of the criminological features of financial transactions through the Hawala system has gained particular relevance. At the same time, the analysis of available sources indicates the insufficient scientific development of this subject. This is especially true of the Russian Federation, which has faced since the beginning of the 90s of XX century with deviations on its territory, including numerous sabotage and terrorist acts, which were often financed through Hawala. As for the domestic law enforcement system, the term “Hawala” itself began to be used only from the middle of the first decade of the new millennium. However, in practice, the situation with countering the financing of terrorism in this area is still not up to par. By the way, in the USA they began to pay attention to this problem only after the terrorist attacks of September 11, 2001, but so far in this country it has not been possible to completely block unwanted financial flows.

Potential negative effects of a cashless society

PurposeIn the past few years, several countries have begun to drastically change their economies to be entirely cash free. The point of this policy change is to hopefully prevent the amount of crime that results from the proliferation of cash. However, there are potential negative consequences to this policy change that receive little to no attention and there are several misconceptions regarding the opportunistic nature and resourcefulness of organized crime. As such, this paper aims to attempt to study these potentially negative consequences to provide some warning to countries adopting a cashless economic policy.Design/methodology/approachThis is a conceptual paper relying upon an understanding of the literature in the fields of sociology, anthropology, psychology and criminology as applied to the topic of money and economic policy.FindingsThis paper discusses numerous negative effects to adopting a cashless economic policy, to include the proliferation of underground financing through the hawala system and organized criminal channels, the increased use of Bitcoin, the more difficult task of tracking currency through bank reporting requirements, and the potential effect of increasing other crimes, which are harder to track.Research limitations/implicationsThis is an entirely conceptual paper. As such, it is not able to state definitively whether the outcomes discussed will occur or to what extent it may occur.Practical implicationsThis paper could help to serve as a warning for governments wishing to adopt a cashless economic policy, and it may encourage those countries to hopefully develop safeguards to prevent some of the potentially negative effects that might result.Social implicationsThis paper expands upon the understanding of money and the various ways that individuals may adapt or react culturally, psychologically or violently to changes in monetary policy or the form of currency itself.Originality/valueThere have been few if any paper discussing the consequences of cashless economic policies and its implications toward organized crime. This paper is unique in both the subject matter being discussed and the conceptual arguments it puts forth.

Оценка финансовых операций в международной системе "хавала" в контексте предотвращения угроз национальной безопасности (Assessment of Financial Transactions through International Havala System in the Context of Preventing the Threats to National Security)

Russian Abstract: В статье авторами на основании изученного мирового опыта предлагается классификация систем переводов денег и ценностей (СПДЦ), рассматривается место системы хавала, дается превентивная оценка связи системы хавала с финансированием терроризма, обобщаются финансово-экономические угрозы национальной безопасности, характерные для системы хавала. English Abstract: In this article the author on the basis of international experience suggests classification of transactions carried out by the money or value transfer systems (MVTS), the author studies the role of Hawala system, the preventive assessment of the connection of the Hawala system with the terrorism financing is given, and threats to national security caused by Hawala system are summarized.

Detection mechanisms under Kenya’s anti-money laundering regime: omissions and loopholes

PurposeThis paper aims to detect the methods that facilitate the identification of potential money laundering activities in Kenya. Kenya is a transit point for international drug traffickers and trade-based money laundering. Hence, it is vulnerable to money laundering and consequently, it is necessary to examine the potency of its first lines of defence and its weaknesses.Design/methodology/approachThe research is secondary in nature. It is based on reviewing relevant literature and analyzing the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) and the Proceeds of Crime and Anti-Money Laundering Regulations (POCAMLR). Both form the core of Kenya’s anti-money laundering regime.FindingsGenerally, the identified methods can facilitate identification of proceeds of crime and possible laundering activity. However, there are challenges in the provisions that could reduce effectiveness. These include intrinsic loopholes and implementation challenges, in the provisions relating to accountants, precious stone and metal dealers and the hawala system. Additionally, there is the key omission of car dealers and legal professionals from the mechanisms for detecting money laundering.Originality/valueGiven Kenya’s money laundering susceptibility, it is necessary and prudent to critically examine its mechanisms for detecting money laundering. The paper seeks to make a practical and scholarly contribution in filling this extant gap. This paper can trigger further discussions as well as the necessary legislative and policy changes. This would positively enhance the success of Kenya’s anti-money laundering regime in detecting money laundering activities.

The Hawala System in Pakistan: A Catalyst for Money Laundering & Terrorist Financing

The Hawala System in Pakistan: A Catalyst for Money Laundering & Terrorist Financing

More Than a Criminal Tool: The Hawala System’s Role As A Critical Remittance Channel for Low-Income Pakistani Migrants in Dubai

This paper examines how and why migrants remit through unauthorized remittance channels (namely the hawala or hundi) and investigates the hawala's developmental roles and effects on migrants’ socioeconomic status. Applying a qualitative case study of 30 low-income Pakistani migrants in Dubai, we argue that the thriving yet unauthorized status of the hawala system is a unique product of global migration process. In contrast to the dominant literature on the nexus between the hawala and terrorist and criminal-related financing, we assert that the sustainability of the hawala is the result of an ongoing effort of low-income migrants to increase their remitting power, providing money that is crucial to their families’ socioeconomic status within the con-text of rapidly globalizing forces. This study provides both important empirical and theoretical insights into the hawala's complex relevance for low-income migrants, governments, and international organizations in global migration context.

Editorial

The World Bank’s latest brief on migration and development launched in October 2017 revealed that remittances to developing countries comprising three quarters of the total global remittance flows are set to grow about 4.8% to reach $450 billion. This is seemingly a reflection of the economic growth recorded in Europe and North America. Therefore not surprising to see the receiving countries in this period will be the migrant sending countries to these destinations. Hence India continues to be the top recipient. As we have analysed in the case of remittances from the UK (See Sirkeci and Privara, 2017), cost of sending money to the poorest parts of the world is the most expensive while overall remittance costs remain very high in contrast to the target of 3%, the Sustainable Development Goal. The World Bank brief pins the high cost down to exclusive deals between post offices and money transfer operators in certain countries and the security concerns resulting in higher processing costs for the operators and banks. This is very relevant to the discussions presented in this issue of Remittances Review investigating Hawala system in the Gulf countries and the use of virtual currencies in cross border money transfers. Both trends are benefiting from high costs of traditional money transfer methods via banks and money transfer operators.

ISLAMIC ECONOMICS AND THE EVOLUTION OF THE HAWALA SYSTEM

Referring to the works of Russian and foreign scholars, this article explores moral and ethical values of Islamic sources, postulates of understanding of life that defi ne the central categories of Islamic economics, which contributed to the emergence of the modern Islamic economic doctrine and models that have influenced the formation and evolution of the hawala system and predetermined the vector of its development.

Crowding Out Trust in the Informal Monetary Relationships: The Curious Case of the Hawala System

Trust, along with other influential norms of cooperation, has been traditionally viewed as an important coordination mechanism stabilizing expectations of the participants in the informal economic exchanges. Drawing on the example of the informal value transfer system called hawala, this paper, however, shows that the role of safeguard against opportunism in the informal monetary settings is much more reliably performed by the instruments of social control. Norms of control embedded in community beliefs and common social practices among the hawala members entirely replace trusting attitudes, rendering them superfluous for the purpose of protecting financial interests of clients and intermediaries in this informal system of monetary exchanges.

Ethnic Networks and Illegal Immigration

Illegal immigration through human smuggling originating from the Fujian Province, China, has become a global issue, affecting at least 30 countries. The empirical research on the financial element of illegal immigration suggests the important role of an underground banking system. This study examines the role of ethnic networks in sustaining the operation of Chinese-operated informal fund transfer systems in the United States. The primary source of data is from in-depth interviews with illegal immigrants in New York City and Philadelphia. The findings show that as opposed to lineage-based networks, the networks based on regional dialect allowed illegal Fujianese immigrants, as well as underground bank proprietors, to take advantage of social capital inherent in the expatriate ethnic community. The high levels of trust between underground bank proprietors and their clientele can be understood as resulting from ethnic solidarity and enforceable trust. These features are found to be troublesome at the community level because the research findings illustrate that a community of high ethnic interactions espouses a deviant culture or norms that encourage widely accepted but illegal practices. 1There is a lack of consensus on terminology relating to informal financial systems. The often used terms include “informal funds transfer systems,” “alternative remittance systems,” “underground banking,” “ethnic banking,” and “informal value system.” A more detailed description of these systems can be found in El Qorchi et al. (2003). Some scholars argue that a distinction should be made between “informal funds transfer systems” (IFTS) and “informal value transfer mechanisms” (IFTSM), two different types of informal remittance system. See El Qorchi et al. (2003), Maimbo (2003), Passas (2003). Both refer to “mechanism or networks of people facilitating the transfer of funds or value without leaving a trail of entire transactions or taking place outside the traditionally regulated financial channels” (El Qorchi et al. 2003). However, IFTS is mainly used for pure monetary value transfer carried out by ethnic businesses. The practice was widespread in sub-continental India and China and now their services are available across the globe. They are subject to financial regulations applicable to money services businesses. Examples of IFTS include the hawala system (prevalent in India and the Middle East) and Chinese underground banking systems (Qianzhuang in Chinese). IFTSM refers to the transfer of value in the form of goods, or a combination of goods and money, for their monetary value. Examples of IFTSM include in-kind transfers/payments, invoice manipulation, trade diversion, etc. They usually have interface with the formal banking institutions, but leave no money trail. See Maimbo and Passas (2004). The IFTS is used in this paper to stand for Chinese-operated informal remittance transfer systems.

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

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.

The Invisible Bank: Regulating the Hawala System in India, Pakistan and the United Arab Emirates

The Invisible Bank: Regulating the Hawala System in India, Pakistan and the United Arab Emirates

Hawala and money laundering: a Malaysian perspective

Defines “Hawala” as an Arabic word meaning “change” or “transform”. Describes it as a system which goes back to 11th century India and allows money to be transferred around the globe without actual money movement or wire transfers, depending on a system of family, clan or ethnic connections. Outlines the benefits of hawala remittance as its cost effectiveness, reliability, efficiency, speed, and convenience for foreign workers who may be semi‐illiterate and certainly not familiar with formal banking systems. Relates this to actual hawala money changers in Malaysia’s Klang Valley, who provided the information for this article, and to the potential of the hawala system to facilitate money laundering and, ultimately, terrorism. Reports that Malaysia is a country named by the Pentagon as a country in which terrorists launder funds, and that it has implemented focused and wideranging measures to combat this menace.