How ‘Hawala’ Impacts National Security and Economy?

Today’s world is constantly improving through searching for new technologies and operation methodologies to more contemporary sound money transferring systems sources. But most countries worldwide still rely upon traditional systems of transferring money – such as the ‘hawala’ system. A huge number of expatriates worldwide travel to other countries for better job opportunities and to aid their families’ financial status through remittances. For instance, there are countless Indian diasporas working in developed countries who send money to India through different remittance services to provide economic help to their families. 


Among other remittance transfer methods, hawala is still used by a vast number of Indian expats globally since it’s been in practice in India for years. Though hawala has been declared an illegal transfer system in many countries of the world, it is still used for unlawful purposes, making it a risk to the economy and a source of panic for national security. 


How does hawala work?


The hawala system has existed since the 8th century amongst India, Arab countries and Muslim traders worldwide. It is a popular but informal system of transferring money, based on the performance and reputation of a massive group of hawala money brokers, known as Hawaladars. These financial brokers are spread worldwide and outside or parallel to traditional banking systems, remittance systems, and other financial channels. There is no paperwork involved because it works without actually moving the money from one place to another. In short, this transfer system works based on ‘trust’ and the reputation of the involved Hawaladars.


Why the hawala system?

The hawala becomes an attractive system for patrons because it makes it attractive for illegal use. In other words, hawala is a system that becomes an advantage if used for good purposes, but it is highlighted as a disadvantage when used for illicit purposes. The most beneficial aspect of hawala is its anonymity in its transactions, as no official records are kept, so the transfer is untraceable. But this aspect is used by many unlicensed institutions for illegal purposes. Money launderers and terrorist organisations exploit the hawala system for felonious causes. Corrupt individuals use the hawala system to evade taxes, and their source of income as their businesses are not recorded through proper channels like banks and financial service providers. Nonetheless, hawala is mainly used for criminal purposes and intentions, and so it has been banned in many countries. 

The only effective method to get rid of such remittance methods is to go with credible service providers where a completely legal process is followed for international transactions. If an expatriate, for instance, an Indian overseas worker, make a money transfer to India online, it will be a completely safe transaction from all the money laundering and other criminal activities associated with hawala.


How does hawala affect the economy?

Hawala banking has adverse repercussions on the economic condition of official financial institutions of a country. The economic effects of these unofficial transactions would be reflected in a decline of deposit accounts, savings accounts, and time deposits compared to official transfers. Most hawala users are categorised in higher-income groups for accumulating assets abroad while impacting the composition of broad money. 

The pernicious effect of the informal hawala system on the banking sector and the contrary development of the financial economy increase the instability of the limited financial intermediation. It impacts demand for money and improvises monetary transmission mechanisms while restricting the efficiency of economic policies. It may also constrain the economy’s interest rates and bank resources as banks offer higher interest rates to attract customers. This situation might aggravate if loss of government revenue from Hundi/hawala activities significantly boosts popularity. But hawala is not just a matter of threat to a nation’s economy; instead, it may also become a subject of risk for that country’s national security.

Indian expatriates add great value to the country’s economy when they send money to India online from several foreign countries. Using hawala and other such illegal methods for money transfers can badly impact the economy.


Impact of hawala/hundi on national security

The national security of a country works for the safety of its nation against terrorism, espionage and money laundering. As many governments have banned hawala worldwide due to its fraudulent use by terrorist agencies, it is a severe issue for national security and a threat to their policies in action. The reliance of terrorist groups upon hawala transactions is due to its untraceable records for the funding of terrorism. Not just terrorist groups use the hawala system, but people in business and politicians who intend to evade taxes or hide their unauthorised properties also prefer using hawala. Ultimately, it makes it even harder for national security to maintain a lawful transaction system and clean reputation. 

Hawala system is not the safest way for you to spend your hard-earned money on your loved ones; several new technologies are introduced as an alternative method for you to perceive.

What is the alternative to Hawala/Hundi Systems?

Various alternate remittance systems have been used with the discovery of new technologies. The most common and popular is the online remittance system. It is the fastest way to send money throughout the world, without any hassle. Many banks and remittance service providers offer safe passage to online money transfers such as ACE Money transfers. ACE, the fastest growing online remittance provider, is a well-reputed and trusted company first established in Bolton, UK.

As many people seek the charm in the hawala system because of its uncharged taxes and avoidable banking fees, the online remittance system offers much more to its customers, making it the best way to send money to India online. Though people think that the hawala system might not charge them with transfer and transaction fees, the Hawaladars may eliminate that rumour when you hear the charges they apply. Most Hawaladar fees sum up to 15% – 20% of the money being transferred, which is way more than online remittance service providers’ prices. And to top that off, online remittance service providers work legally. They are approved by the authorities for this task, just as ACE is recognised by Financial Conduct Authority UK (FCA) as an Authorized Payment Institution (API). 


Therefore, instead of implementing illegal alternatives such as the hawala banking system, one should utilise legal, safe and beneficial methods like online money transfer using the profitable services provided by the online remittance company similar to ACE. 

If you want to know more about online remittance systems and how they work, join ACE Money Transfer now.