Banking in Trust
December 17, 2008 3:40 AM   Subscribe

Hawala or the Bank that Never Was.
Here's how it works.
However this honorable system has been hijacked by drug smugglers, terrorists, even Pirates; although there are problems.
Regulation has its drawbacks hurting some of the worlds poorer economies.
MI6 believes that terror organisations have used the global banking system to its advantage by investing Hawala money in stocks around the world.
posted by adamvasco (24 comments total) 14 users marked this as a favorite
 
adamvasco, you are a mind reader. Just got off the phone with someone where we discussed havala and the challenges posed by today's MSM perception of havala = bad

i come from the bania or vysya community in india, the caste which deals up the bankers, the brokers, the moneylenders and businessmen.

havala has been used for centuries to trade and do business around the world

today it has become a bad word
posted by infini at 4:53 AM on December 17, 2008


Dude, I could totally go for some halva right now!
posted by Pollomacho at 5:32 AM on December 17, 2008


Mod note: a few comments removed - please try to keep "funny" comments a little more sensible unless you're actively trying to derail a thread one comment in, thanks. do over?
posted by jessamyn (staff) at 5:54 AM on December 17, 2008


Why is a global network of undocumented, unregulated obligations cool when called "hawala" but scary when called "the credit default swap market"?
posted by Mr. President Dr. Steve Elvis America at 6:02 AM on December 17, 2008 [2 favorites]


"trust"

the whole system is based on references, recommendations, introductions and trusted networks

is wallstreet?
posted by infini at 6:11 AM on December 17, 2008 [1 favorite]


today it has become a bad word

Yes, and I suspect it's more to do that someone isn't getting a cut of the action rather than terrorist funding.
posted by mattoxic at 6:18 AM on December 17, 2008


Why is a global network of undocumented, unregulated obligations cool when called "hawala" but scary when called "the credit default swap market"?

Uh, because, according to the people in the credit default swap market, the amount of money lost is greater than the GDP of the Earth for a year or two. Terrorists with a platinum card, even one with a big enough credit line to buy a nuke, just can't compete with that.

That is, of course, an on paper debt. If you and I passed a dollar back and forth a million times, one of us would be holding a dollar. The credit default people seem to think we'd both be millionaires.
posted by Kid Charlemagne at 6:21 AM on December 17, 2008 [1 favorite]


Just btw, from the interpol site

four official languages: Arabic, English, French and Spanish No Mandarin? I find that odd.
posted by mattoxic at 6:24 AM on December 17, 2008


Yes, and I suspect it's more to do that someone isn't getting a cut of the action rather than terrorist funding.
posted by mattoxic at 6:18 AM on December 17


the banking and/or remittance industry more likely... why pay more to western union when your brother/cousin/tribe/clan would do it for a portion of that amount and its win win all round?
posted by infini at 6:27 AM on December 17, 2008


fwiw, I've been reading both the interpol link and the bank that never was link and here are some thoughts:

i'm surprised at the overly arabic or islamic tone of these descriptions

while certainly it happens amongst the communities (and the key element of muslim banking has been left out, which is its against the religion to accept or pay interest on loans = usury, hence the need to sidestep western practices) my understanding of hawala as a community practice is that its more to do with the business communities (regardless of religion there have always been communities of traders - phoenicians, jews, chinese, arabs. indians etc since time immemorial)

i find the interpretations simplistic and sensational, particularly interpol when they start getting into the "what kinds of relationships are these" bit

frankly, the great majority are family or extended clan networks and given a choice, would you do business to benefit a member of the family or some third party institution?

there's an interesting article on grassroots community based money practices from africa on pcworld

havala is just one of the many traditional practices

its in the eye of the beholder which is 'conventional' given that the majority of the world is unbanked.
posted by infini at 6:40 AM on December 17, 2008 [2 favorites]


four official languages: Arabic, English, French and Spanish No Mandarin? I find that odd.

Perhaps because presumably only Taiwan and China use Chinese as an administrative language, while you're likely to find more countries than two using any of the four listed languages.
posted by the cydonian at 6:46 AM on December 17, 2008


The misreporting and near-hysteria about this ancient money-transfer practice is just laughable. Among the Chinese it's called "fei chien", and the Vietnamese call it "dịch vụ chuyển tiền". In Arabic it's called Hawala. Other ethnicities call it something else.

It's most commonly used by everyday normal folks around the globe to transfer money to distant family for things like school tuition, medicines and operations, a new roof for the family house, support of elderly parents, or even to finance a small business or buy a piece of property.

It works where there are no other obvious alternatives and/or the banking connections aren't up to snuff. Like if Grannie in Ecuador or one's sister in Vietnam needs an expensive hospital treatment ASAP (e.g. tomorrow). You just take the cash (plus small transfer fee) to the money transfer person, provide the recipient name and address, and that's it. Within a short period of time (usually hours and not days) the recipient is contacted by a local representative and the cash is delivered by hand in the local currency or even gold or U.S. dollars or Euros (usually one can specify the destination currency).

Calling this pervasive, global, and ancient money system by it's Arabic name "hawala" and associating it with drug-dealing and terrorism is a cute trick on the ignorant, but it's pathetically wrong and (intentionally?) misleading.
posted by riskmeister at 7:16 AM on December 17, 2008 [5 favorites]


irony in practice
posted by infini at 7:25 AM on December 17, 2008


Good comments infini.

i'm surprised at the overly arabic or islamic tone of these descriptions

Agreed, money transfer agents have been around in all civilizations and in all cultures since there was money. It's not merely an Arabic practice and to assert such a thing is completely ignorant.

communities of traders - phoenicians, jews, chinese, arabs. indians etc since time immemorial)

It's used by any and all people for anything and everything requiring the transfer of money from point A to point B and for whatever reason. Not just traders.

the great majority are family or extended clan networks and given a choice, would you do business to benefit a member of the family or some third party institution?

Not sure I believe that "family and clan" angle. It's a business like any other and though it maybe easier to trust "family or clan" it's by no means necessary.

its in the eye of the beholder which is 'conventional' given that the majority of the world is unbanked.

I don't think it needs to be quite that subjective ("eye of the beholder"). Because quite simply the offline money transfer system has been around much longer than "conventional" banking and I would guess has a larger number of small retail international transactions than the "conventional" system.
posted by riskmeister at 7:31 AM on December 17, 2008 [2 favorites]


riskmeister

i hear and acknowledge what you are saying, my observations are not from any finance or technical knowledge, simply asbsorbed as a member of the extended business family networks
posted by infini at 7:40 AM on December 17, 2008


You actually see this happen in the case of international graduate student applicants who need to show financial resources in a single bank account as part of the application and visa process. The technique is for family members to combine funds into a bank account for a limited amount of time to show solvency per regulations and then have the money re-distributed back to the "lenders" after the letter of the law is satisfied.

There are not many students, domestic or foreign, who can show 10K+ in liquid assets for an extended amount of time.
posted by jadepearl at 8:17 AM on December 17, 2008


You know the paper cash in your pocket is just a symbol of a transfer of value right?
posted by Pollomacho at 8:17 AM on December 17, 2008


Small world. A paper by a friend of mine is referenced in some of those links; he's one of the leading authorities on terrorist usage of hawala. Crazy smart guy with a freakish talent for both math & language, he's fluent in somewhere north of 30 languages & dozens of dialects. I remember sometime in the mid-90's he wanted me to recommend a cellphone that worked "everywhere". When I asked where was included in "everywhere" he replied "Afghanistan". I pointed him in the direction of Iridium which wasn't actually operational yet but was the only commercial system I knew of with that kind of footprint even planned.
posted by scalefree at 10:44 AM on December 17, 2008


black money in india
posted by infini at 10:55 AM on December 17, 2008


I use hawala several times a year.

When I took a holiday in Bombay, I visited a tailor who was recommended to me by banking colleagues. Aziz, great guy, does excellent work. I've kept the business relationship open since that holiday, using hawala to transfer funds.

Maybe four times a year I get shirts or suits from Aziz. Tailor made dress shirts cost me about fifteen pounds each, suits run about £130, fit like a glove. Once you go tailor made you'll never go back.

I email him to ask about prices, specifying what I'd like, always careful to exchange pleasantries ("blessing to your and your family"). He gives me a quote and directs me to a business someplace here in London's East End, blessing me and my family in return. Nice guy, he's changed his hawala dealer here in London a few times, don't know why.

Usual routine has me going into some rather grungy shop, asking for a guy whose name I can't pronounce (they're never offended) and who almost alway turns out to be really old. Oh! Every time the guy is either reading the Qu'ran, or there is one close by.

I give the guy the cash and Aziz's name / shop / etc. Always seems to know Aziz, generally competing the details as I say them. Never was offered a receipt and never asked for one either, as I'd read about this system and knew how it works.

That's it, and Aziz usually has the shirts done in and in transit maybe five days later. Sends them surface, takes perhaps eight weeks to arrive. He makes his own shipping container as well. Takes some heavy cloth and sews the shirts or suits up in it, to form a not-so-crude, highly effective and dirt cheap package.

These are straight up guys across the board. I've never had a problem and over the years I've pushed about a thousand pounds through this system. Once again, no receipts and lots of good feeling all around doing biz like that.

Simple, highly effective, faster and more reliable than Western Union or bank transfers. So that's a plus for me. Advantages to Aziz - well I don't know but I'd guess Indian authorities can't tax him if they can't prove he's receiving funds (that's his biz, not mine), and he gets his money almost immediately. I was always curious about the spreads, but these guys seem content enough to let everyone along the way make a little money.

A traditional system in use for hundreds of years, I read about this in Business School, and it's really neat to use it.

No problems at all. Truth be told, I get more problems from HRM Customs, who sometimes see fit to charge me for the privilege of wearing tailor made clothes.
posted by Mutant at 11:39 AM on December 17, 2008 [8 favorites]


Mutant -- That's a great first person account. I also have pushed a lot of money through the system over the last 10 years, including for a house, a plot of land, hospital and medical bills, tuition and family support, etc. I've *never* had a problem. In one surprising transaction I "deposited" the funds in the evening, and upon waking the next morning discovered that they'd already been hand-delivered (in fresh crisp U.S. $100 bills) halfway around the planet.

Oddly this beats using Citibank ATMs in the destination country (e.g., deposit here in the States, withdraw from an ATM at the destination) due to the sums involved and the inconvenience of getting to the local Citibank branch there. Whereas the "offline money transfer network" delivers right to the front door like the post office or the daily newspaper.

infini -- Sorry my previous post might have seemed too critical of your account and that was not my intention.
posted by riskmeister at 12:34 PM on December 17, 2008


Mutant, riskmeister... You are why I read mefi.
posted by Thoth at 6:10 PM on December 17, 2008


np riskmeister, nuances of language are stripped of context textually speaking
posted by infini at 9:26 PM on December 17, 2008


There's a nice discussion of early-western use of these types of systems in "Medici Money", by Tim Parks. In those days, christians couldn't lend money at interest either (the sin of usury); the book explains how exchange-rate differences and a "standard delay" in "transferring" money ended up being equivalent to an interest rate. The downfall of the Medici bank came due to problems in moving goods to balance the capital flows, and a tendency to lend money to people who were too powerful to (be forced to) pay it back.

Also a fascinating and wonderfully-written window into the 15th century in general!
posted by nickp at 3:11 PM on December 18, 2008


« Older My SUV seats two   |   Name it and it will be yours Newer »


This thread has been archived and is closed to new comments