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Origins[ edit ] The hawala system has existed since the 8th century between Arabic and Muslim traders alongside the Silk Road and beyond as a protection against theft.
It is believed to have arisen in the financing of long-distance trade around the emerging capital trade centers in the early medieval period. In South Asiait appears to have developed into a fully-fledged money market instrument, which was only gradually replaced by the instruments of the formal banking system in the first half of the 20th century.
The words aval and avallo were themselves derived from hawala. The agency was also "an institution unknown to Roman law" as no "individual could conclude a binding contract on behalf of another as his agent ".
In Roman law, the "contractor himself was considered the party to the contract and it took a second contract between the person who acted on behalf of a principal and the latter in order to transfer the rights and the obligations deriving from the contract to him".
On the other hand, Islamic law and the later common law "had no difficulty in accepting agency as one of its institutions in the field of contracts and of obligations in general". How hawala works[ edit ] In the most basic variant of the hawala system, money is transferred via a network of hawala brokers, or hawaladars.
It is the transfer of money without actually moving it. In fact, a successful definition of the hawala system that is used is "money transfer without money movement". According to author Sam Vaknin, while there are large hawaladar operators with networks of middlemen in cities across many countries, most hawaladars are small businesses who work at hawala as a sideline or moonlighting operation.
Along with the money, he usually specifies something like a password that will lead to the money being paid out blue arrows. If the password is correct, then M releases the transferred sum to B 3busually minus a small commission. X now basically owes M the money that M had paid out to B; thus M has to trust X's promise to settle the debt at a later date.
The unique feature of the system is that no promissory instruments are exchanged between the hawala brokers; the transaction takes place entirely on the honour system. As the system does not depend on the legal enforceability of claims, it can operate even in the absence of a legal and juridical environment.
Trust and extensive use of connections are the components that distinguish it from other remittance systems. Hawaladars networks are often based on membership in the same family, village, clan, or ethnic group, and cheating is punished by effective ex-communication and "loss of honour"—leading to severe economic hardship.
Settlements of debts between hawala brokers can take a variety of forms such as goods, services, properties, transfers of employees, etc. In addition to commissions, hawala brokers often earn their profits through bypassing official exchange rates.
Generally, the funds enter the system in the source country's currency and leave the system in the recipient country's currency. As settlements often take place without any foreign exchange transactions, they can be made at other than official exchange rates.
Hawala is attractive to customers because it provides a fast and convenient transfer of funds, usually with a far lower commission than that charged by banks. Its advantages are most pronounced when the receiving country applies unprofitable exchange rate regulations or when the banking system in the receiving country is less complex e.
Moreover, in some parts of the world it is the only option for legitimate fund transfers, and has even been used by aid organizations in areas where it is the best-functioning institution.Alternative Banking Channels Business Internet Banking Balance and Transaction Reporting All deposit accounts you designate will be accessible through Business Internet Banking.
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