What is Hawala System?

So what is Hawala? Basically, you should know that while the term Hawala means trust, it is an illegal way of remittance cross-borders and also called Hundi. There will be middle men. Who act as money brokers and make transfers. There is no physical cash movement in this process of remittance.

The system has its basis on mutual trust and understanding between Hawala agents. Its working remains outside the boundaries of financial systems and banks.The basic means of remittance is communication between various agents across countries. It is the alternative way and a modified form of traditional remittance system.

The working of this system is as follows. There are network of operators who are known as Hawala dealers or hawaldars. Anyone seeking remittance reaches one of these agents and then collects the money from sender. Then the agent will reach his other partner at the location where the transfer has to be made. The other agent will give the money to the ‘receiver’ after the agent deducts his own fee or commission.

The bottom line of this entire funds transfer method is nothing more than trust. Sometimes, these transactions also make use of codes that allow the receiver to get the money from destination agent. The sender will send the money in his current country’s currency while the receiver will receive it in his current country’s currency.

Of course, there are various pros and cons of this method. While it is very simple, fast and cheap way to transfer funds across the borders, one of the major drawbacks is that these Hawala agents may be involved in illegal activities too. Other than this, the method is of course cheap as the commission rate is very low. Another advantage is higher exchange rates as other institutions would provide you low exchange rates.

Disclaimer: We Don’t recommend using this system for transferring money. The articles has been published for information purpose only.