Mideast's ancient hawala system: follow the flow of migrant money

Published January 28th, 2016 - 16:17 GMT

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Hawala is the main means by which migrants move money, a system that enables users to transfer cash via an ancient compact founded solely on trust. It’s use has expanded with the millions of MidEast migrants moving towards the EU since the start of the Syrian conflict.

It’s banking at it’s simplest, devised by medieval tradesmen who needed to outsmart highway robbers on the dangerous Silk and Spice Roads. The same benefits apply today to migrants crossing international borders. While it could serve criminal activity, experts maintain that’s a tiny fraction of all hawala transactions. Continue reading below »

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Hawala is an ancient trust-based system of money transfer that leaves no paper trail and works outside traditional banking protocols. It evolved to enable trade between distant places where conventional banking instruments were weak or nonexistent. Today the world’s “guest workers” use it to send an estimated $390 bil a year back home.
Reduce

Image 1 of 12:  1 / 12Hawala is an ancient trust-based system of money transfer that leaves no paper trail and works outside traditional banking protocols. It evolved to enable trade between distant places where conventional banking instruments were weak or nonexistent. Today the world’s “guest workers” use it to send an estimated $390 bil a year back home.

Enlarge
Hawala - which means “transfer” in Arabic - was widely adopted by medieval traders to fund transactions without sending money along commercial routes that threaded through treacherous territory. Think of the ancient Spice and Silk Roads. Modern users tend to be people with no bank accounts, ATM or credit cards.
Reduce

Image 2 of 12:  2 / 12Hawala - which means “transfer” in Arabic - was widely adopted by medieval traders to fund transactions without sending money along commercial routes that threaded through treacherous territory. Think of the ancient Spice and Silk Roads. Modern users tend to be people with no bank accounts, ATM or credit cards.

Enlarge
It’s become the main banking method for Middle Eastern migrants; low transaction fees and cultural familiarity underpin its ballooning popularity.Transfers are quick. Cash is available within 48 hours and can reach rural and remote places. Interpol defines it as 'money transfer without money movement.'
Reduce

Image 3 of 12:  3 / 12It’s become the main banking method for Middle Eastern migrants; low transaction fees and cultural familiarity underpin its ballooning popularity.Transfers are quick. Cash is available within 48 hours and can reach rural and remote places. Interpol defines it as "money transfer without money movement."

Enlarge
It works like this. A customer gives cash to a hawala broker (or hawaladar) in one city to be transferred to a recipient in another location. They agree a password that will permit the end payout. Hawaladar #1 calls hawaladar #2 in the recipient's city, informs #2 as to the password, and relays any other instructions for releasing funds.
Reduce

Image 4 of 12:  4 / 12It works like this. A customer gives cash to a hawala broker (or hawaladar) in one city to be transferred to a recipient in another location. They agree a password that will permit the end payout. Hawaladar #1 calls hawaladar #2 in the recipient's city, informs #2 as to the password, and relays any other instructions for releasing funds.

Enlarge
The customer informs the intended recipient about the password, which can be a number or a unique secret token such as a specific piece of jewelry or a photo. The recipient meets hawaladar #2, discloses the password, and collects the sum, minus a commission that averages about 5% of total transfer value.
Reduce

Image 5 of 12:  5 / 12The customer informs the intended recipient about the password, which can be a number or a unique secret token such as a specific piece of jewelry or a photo. The recipient meets hawaladar #2, discloses the password, and collects the sum, minus a commission that averages about 5% of total transfer value.

Enlarge
It’s all about trust. Hawaladar #1 now owes hawaladar #2 for the money paid out, and must trust that the debt will be settled. Promissory notes are not exchanged and hawala disputes fall outside the law. Trust is bolstered by family relations and tribal affiliations. Fraud is rare as an unscrupulous hawaladar loses credibility and reputation.
Reduce

Image 6 of 12:  6 / 12It’s all about trust. Hawaladar #1 now owes hawaladar #2 for the money paid out, and must trust that the debt will be settled. Promissory notes are not exchanged and hawala disputes fall outside the law. Trust is bolstered by family relations and tribal affiliations. Fraud is rare as an unscrupulous hawaladar loses credibility and reputation.

Enlarge
Hawala brokers periodically settle up debts via direct cash transactions, or a swap of properties, goods, and services. Operating costs are low as brokers don’t pay registration and compliance fees that established agents like Western Union do. They also set their own currency exchange rates, further padding profits.
Reduce

Image 7 of 12:  7 / 12Hawala brokers periodically settle up debts via direct cash transactions, or a swap of properties, goods, and services. Operating costs are low as brokers don’t pay registration and compliance fees that established agents like Western Union do. They also set their own currency exchange rates, further padding profits.

Enlarge
Hawala is perfectly suited to the millions of Middle Eastern refugees entering the EU with a just a backpack of belongings, which nearly always includes a smartphone. Skype, Viber and WhatsApp allow people to tap into WiFi hotspots to arrange transactions.
Reduce

Image 8 of 12:  8 / 12Hawala is perfectly suited to the millions of Middle Eastern refugees entering the EU with a just a backpack of belongings, which nearly always includes a smartphone. Skype, Viber and WhatsApp allow people to tap into WiFi hotspots to arrange transactions.

Enlarge
The WSJ reported 90% of transactions in the EU human traffic trade (valued at around $2.5 bil a year) use hawala. It moves billions more to developing nations as workers send wages home. Hawala is maximally flexible in that sums can be redeemed in multiple currencies, paid in-full on-demand or as per client-defined pay-out stages.
Reduce

Image 9 of 12:  9 / 12The WSJ reported 90% of transactions in the EU human traffic trade (valued at around $2.5 bil a year) use hawala. It moves billions more to developing nations as workers send wages home. Hawala is maximally flexible in that sums can be redeemed in multiple currencies, paid in-full on-demand or as per client-defined pay-out stages.

Enlarge
Hawala is big business in Turkey, with Istanbul and Izmir emerging as hawala hubs for incoming Syrians.  Traffickers may help refugees escape home conflict, but any altruism is tainted by near-total disregard for health and safety and an underworld connection. Smugglers and halawadar both pay off  police and crime gangs to sustain business.
Reduce

Image 10 of 12:  10 / 12Hawala is big business in Turkey, with Istanbul and Izmir emerging as hawala hubs for incoming Syrians. Traffickers may help refugees escape home conflict, but any altruism is tainted by near-total disregard for health and safety and an underworld connection. Smugglers and halawadar both pay off police and crime gangs to sustain business.

Enlarge
Hawala systems have been suspect since the 9/11 terror attacks. In 2010, Faisal Shahzad, who planted a car bomb in New York’s Times Square, admitted to using hawala to finance his caper. In 2015, the UN tagged hawala as a key part of the ISIS financial structure. But experts say criminal activity forms just a fraction of overall hawala transfers.
Reduce

Image 11 of 12:  11 / 12Hawala systems have been suspect since the 9/11 terror attacks. In 2010, Faisal Shahzad, who planted a car bomb in New York’s Times Square, admitted to using hawala to finance his caper. In 2015, the UN tagged hawala as a key part of the ISIS financial structure. But experts say criminal activity forms just a fraction of overall hawala transfers.

Enlarge
As it did for the ancient traders, hawala reduces risks of robbery on cross-border treks. It's secure, as a third party holds the cash until the migrant arrives at a specific destination. And it's oddly akin to new internet 'cryptocurrencies', such as Bitcoin, that allow fast peer-to-peer digital transactions without an intermediary.
Reduce

Image 12 of 12:  12 / 12As it did for the ancient traders, hawala reduces risks of robbery on cross-border treks. It's secure, as a third party holds the cash until the migrant arrives at a specific destination. And it's oddly akin to new internet "cryptocurrencies", such as Bitcoin, that allow fast peer-to-peer digital transactions without an intermediary.

Enlarge

1

Hawala is an ancient trust-based system of money transfer that leaves no paper trail and works outside traditional banking protocols. It evolved to enable trade between distant places where conventional banking instruments were weak or nonexistent. Today the world’s “guest workers” use it to send an estimated $390 bil a year back home.

Image 1 of 12Hawala is an ancient trust-based system of money transfer that leaves no paper trail and works outside traditional banking protocols. It evolved to enable trade between distant places where conventional banking instruments were weak or nonexistent. Today the world’s “guest workers” use it to send an estimated $390 bil a year back home.

2

Hawala - which means “transfer” in Arabic - was widely adopted by medieval traders to fund transactions without sending money along commercial routes that threaded through treacherous territory. Think of the ancient Spice and Silk Roads. Modern users tend to be people with no bank accounts, ATM or credit cards.

Image 2 of 12Hawala - which means “transfer” in Arabic - was widely adopted by medieval traders to fund transactions without sending money along commercial routes that threaded through treacherous territory. Think of the ancient Spice and Silk Roads. Modern users tend to be people with no bank accounts, ATM or credit cards.

3

It’s become the main banking method for Middle Eastern migrants; low transaction fees and cultural familiarity underpin its ballooning popularity.Transfers are quick. Cash is available within 48 hours and can reach rural and remote places. Interpol defines it as 'money transfer without money movement.'

Image 3 of 12It’s become the main banking method for Middle Eastern migrants; low transaction fees and cultural familiarity underpin its ballooning popularity.Transfers are quick. Cash is available within 48 hours and can reach rural and remote places. Interpol defines it as "money transfer without money movement."

4

It works like this. A customer gives cash to a hawala broker (or hawaladar) in one city to be transferred to a recipient in another location. They agree a password that will permit the end payout. Hawaladar #1 calls hawaladar #2 in the recipient's city, informs #2 as to the password, and relays any other instructions for releasing funds.

Image 4 of 12It works like this. A customer gives cash to a hawala broker (or hawaladar) in one city to be transferred to a recipient in another location. They agree a password that will permit the end payout. Hawaladar #1 calls hawaladar #2 in the recipient's city, informs #2 as to the password, and relays any other instructions for releasing funds.

5

The customer informs the intended recipient about the password, which can be a number or a unique secret token such as a specific piece of jewelry or a photo. The recipient meets hawaladar #2, discloses the password, and collects the sum, minus a commission that averages about 5% of total transfer value.

Image 5 of 12The customer informs the intended recipient about the password, which can be a number or a unique secret token such as a specific piece of jewelry or a photo. The recipient meets hawaladar #2, discloses the password, and collects the sum, minus a commission that averages about 5% of total transfer value.

6

It’s all about trust. Hawaladar #1 now owes hawaladar #2 for the money paid out, and must trust that the debt will be settled. Promissory notes are not exchanged and hawala disputes fall outside the law. Trust is bolstered by family relations and tribal affiliations. Fraud is rare as an unscrupulous hawaladar loses credibility and reputation.

Image 6 of 12It’s all about trust. Hawaladar #1 now owes hawaladar #2 for the money paid out, and must trust that the debt will be settled. Promissory notes are not exchanged and hawala disputes fall outside the law. Trust is bolstered by family relations and tribal affiliations. Fraud is rare as an unscrupulous hawaladar loses credibility and reputation.

7

Hawala brokers periodically settle up debts via direct cash transactions, or a swap of properties, goods, and services. Operating costs are low as brokers don’t pay registration and compliance fees that established agents like Western Union do. They also set their own currency exchange rates, further padding profits.

Image 7 of 12Hawala brokers periodically settle up debts via direct cash transactions, or a swap of properties, goods, and services. Operating costs are low as brokers don’t pay registration and compliance fees that established agents like Western Union do. They also set their own currency exchange rates, further padding profits.

8

Hawala is perfectly suited to the millions of Middle Eastern refugees entering the EU with a just a backpack of belongings, which nearly always includes a smartphone. Skype, Viber and WhatsApp allow people to tap into WiFi hotspots to arrange transactions.

Image 8 of 12Hawala is perfectly suited to the millions of Middle Eastern refugees entering the EU with a just a backpack of belongings, which nearly always includes a smartphone. Skype, Viber and WhatsApp allow people to tap into WiFi hotspots to arrange transactions.

9

The WSJ reported 90% of transactions in the EU human traffic trade (valued at around $2.5 bil a year) use hawala. It moves billions more to developing nations as workers send wages home. Hawala is maximally flexible in that sums can be redeemed in multiple currencies, paid in-full on-demand or as per client-defined pay-out stages.

Image 9 of 12The WSJ reported 90% of transactions in the EU human traffic trade (valued at around $2.5 bil a year) use hawala. It moves billions more to developing nations as workers send wages home. Hawala is maximally flexible in that sums can be redeemed in multiple currencies, paid in-full on-demand or as per client-defined pay-out stages.

10

Hawala is big business in Turkey, with Istanbul and Izmir emerging as hawala hubs for incoming Syrians.  Traffickers may help refugees escape home conflict, but any altruism is tainted by near-total disregard for health and safety and an underworld connection. Smugglers and halawadar both pay off  police and crime gangs to sustain business.

Image 10 of 12Hawala is big business in Turkey, with Istanbul and Izmir emerging as hawala hubs for incoming Syrians. Traffickers may help refugees escape home conflict, but any altruism is tainted by near-total disregard for health and safety and an underworld connection. Smugglers and halawadar both pay off police and crime gangs to sustain business.

11

Hawala systems have been suspect since the 9/11 terror attacks. In 2010, Faisal Shahzad, who planted a car bomb in New York’s Times Square, admitted to using hawala to finance his caper. In 2015, the UN tagged hawala as a key part of the ISIS financial structure. But experts say criminal activity forms just a fraction of overall hawala transfers.

Image 11 of 12Hawala systems have been suspect since the 9/11 terror attacks. In 2010, Faisal Shahzad, who planted a car bomb in New York’s Times Square, admitted to using hawala to finance his caper. In 2015, the UN tagged hawala as a key part of the ISIS financial structure. But experts say criminal activity forms just a fraction of overall hawala transfers.

12

As it did for the ancient traders, hawala reduces risks of robbery on cross-border treks. It's secure, as a third party holds the cash until the migrant arrives at a specific destination. And it's oddly akin to new internet 'cryptocurrencies', such as Bitcoin, that allow fast peer-to-peer digital transactions without an intermediary.

Image 12 of 12As it did for the ancient traders, hawala reduces risks of robbery on cross-border treks. It's secure, as a third party holds the cash until the migrant arrives at a specific destination. And it's oddly akin to new internet "cryptocurrencies", such as Bitcoin, that allow fast peer-to-peer digital transactions without an intermediary.

Reduce

As in antiquity, it operates off-the-books and under-the-radar of governments, tax collectors, and institutional banks. It’s not totally unlike today’s peer-to-peer transactions using digital currency like Bitcoin or Litecoin, which some believe will soon be used in halawa. When it comes to commerce, cutting out the middle man never gets old.

 

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