Remember: Hawala or Hundi like IFT is illegal in India and abroad.
In earlier times, our ancestors needed a way to trade with outside world, thats too, without taking the negotiable stuff, i.e. Gold, Silver. They invented IFT (Informal Fund Transfer) because of the dangers of travelling with gold and other forms of payment on routes beset with bandits. Local systems were widely used in China and other parts of East Asia and continue to be in use there.
They go under various names— Fei-Ch’ien (China), Padala (Philippines), Hundi (India), Hui Kuan (Hong Kong), and Phei Kwan (Thailand). The Hawala (or Hundi) system now enjoys widespread use but is historically associated with South Asia and the Middle East.
Hawala or Hundi, both are informal systems of transferring money around the world. This trade runs side by side with technical banking, to remit the amount, or to home deliver the assigned money with the help of an authentication code, no complex documentation required. However, this private transferring model is kind of vulnerable, despite being a fast and timely doorstep foreign exchange payment.
The reason is the Hawala system’s alleged role in financing illegal and terrorist activities, along with its traditional role of transferring money between individuals and families, often in different countries. Against this background, governments and international bodies have tried to develop a better under- standing of these systems, assess their economic and regulatory implications, and design the most appropriate approach for dealing with them.
Informal funds transfer (IFT) systems are in use in many regions for transferring funds, both domestically and internationally. The hawala system is one of the IFT systems that exist under different names in various regions of the world. It is important, however, to distinguish the hawala system from the term hawala, which means “transfer” or “wire” in Arabic banking jargon. The hawala system refers to an informal channel for transferring funds from one location to another through service providers— known as hawaladars—regardless of the nature of the transaction and the countries involved. While hawala transactions are mostly initiated by emigrant workers living in a developed country, the hawala system can also be used to send funds from a developing country, even though the purpose of the funds transfer is usually different.
In layman language ‘Hawala ‘Hawaladars, or Hawala dealers, arrange money transfers that are often backed only by trust, family connections or regional relationships.
Hawala originated in South Asia during ancient times, and is used throughout the world today, particularly in the Islamic community as an alternative means of conducting funds transfers. Hawala is frequently referred to as underground banking, which is a misnomer because Hawala services often operate openly and legitimately.
Author is in International Business for 15 years.