Lecturer in Charge RA.Sarjoon 03.06.2011 Hawala IAIB3101- Fiqh ul Muaamalath -II Lecturer in Charge RA.Sarjoon 03.06.2011

Definition of Hawala Involves the transfer of values between countries, outside of the legitimate banking system, an called “underground”, “parallel” or “shadow” banking. Refers to mechanisms or networks of people facilitating the transfer of funds or value outside the regulated financial channels.

Hawala Terms Hawala = Urdi word meaning “reference” , it is based on trust. The Arabic root h-w-l means “transfer”. “Hawaladar” refers to hawala operator.

History Hawala is an ancient international method of transferring money that is based upon trust. It has existed for centuries, wherever expatriates’ communities lived. Starting from the mid 70’s Hawala was used widely by expatriate workers in the Gulf area.

Types & Definitions of Money Transfers Legitimate A system of overseas money transfers using licensed, regulated and supervised financial institutions Illegitimate A transfer or remittance of money outside the regulated banking system or legal financial channels, considered to be an informal underground banking transactions.

Hawala works by transferring money without immediately moving it. How Does Hawala Work? Hawala works by transferring money without immediately moving it.

One-way stream: Sender provides money in cash. Funds remitted to the Hawaladar counterpart through the Hawaladar’s bank account(s). Hawaldar in the recipient country receives and disburses funds to the beneficiary

Two-way stream: The sender visits a local Hawaladar and provides the money in cash. The local Hawaladar contacts his counterpart in the beneficiary’s country with instructions to handover the amount to the beneficiary. The two brokers rely on “netting” to settle their balances (reciprocal payments,physical movement of money, invoice manipulation, etc…)

Why hawala developed ? Some people are not familiar with banks and payment systems Numerous papers that has to be filled up in banks Excessive service fees

Advantages Delivery Convenient to towns and villages that have not been served by financial institutions Door-to-door Service Simple Quick Safe Favorable exchange rates Low fees Tax advantages (as it leaves no paper trail) Some Hawaladars go to where the expatriates reside or work to collect money