Hawala: An underground haven for terrorists or social phenomenon?

Abstract

In the wake of September 11, authorities have increasingly focused on an age-old method of banking and money transfer known as “hawala.” In this system, a local hawala dealer in one country (or area) takes money from a customer and (for a nominal commission) has an associate in another country (or area) give an equal amount of money to the recipient. This type of underground banking system remains resilient due to several key characteristics. These are: the system's simplicity, its inclusiveness (enabling it to function without any type of external support), and most importantly, its considerable prominence within, and adherence upon specific cultural and religious spheres. This article provides an overview of hawala banking, together with the historical and cultural milieu that gave rise to, and continues to foster it. It suggests that while Islam addresses the issue of debt transfer through the Islamic concept of hawala, the system is widely practiced through many parts of the world by both Muslim and non-Muslims alike. Therefore, to refer to the practice as wholly “Islamic” is erroneous. This study also demonstrates that the initiatives taken towards regulation and/or elimination of hawala are ill suited to deal with the operation of this particular system. This failure particularly reflects the lack of appreciation, on the part of authorities and policy-makers, for the broader social and cultural context in which hawala opearates. A more insightful understanding of the system will address such issues as competing legal paradigms, the local appeal of the system, as well as the likely negative consequences of current regulatory efforts. Thus, any attempts at regulating hawala should ensue with great cultural and religious sensitivity, and should address some of the larger issues that continue to uphold the system, such as the existence of inadequate economic infrastrcture in such nations as Afghanistan and Somalia.