Taming the Untamable: Rethinking, Regulating, and Revamping Hawala

Abstract

This paper examines the Hawala system, an ancient remittance mechanism enabling money transfers without physical fund movement. Originating from medieval commerce in the Near and Middle East and China’s Tang Dynasty, Hawala now handles an estimated $100-$300 billion annually, operating in parallel with formal financial systems. Despite its vital role for unbanked communities, especially in South Asia and among migrant populations globally, Hawala is often associated with corruption and illicit activities, with post-9/11 links to terrorism and money laundering intensifying calls for its eradication. This study delineates Hawala’s historical roots, unique characteristics, and structure through illustrative examples. It dissects its widespread popularity, exploring geographical prevalence and competitive advantages. Focusing on India, the paper provides a comprehensive overview of Hawala’s socio-economic impact and regulatory complexities, advocating for a balanced dual-pronged approach to integrate Hawala into the formal economy without driving it underground.