page_title: Islamic finance products, services and contracts
section_title: Hawala
hierarchical_section_title: Islamic finance products, services and contracts / Contracts of safety, security, service / Hawala
caption_attribution_description: Deutsch: Beispiel zum Hawala-Banksystem: Person A will an Person B via die "Hawaladars" X und M Geld transferieren. 1. A gibt seinem Hawaladar X das Geld (rot) und teilt ihm das Codewort mit (blau). 2a. Danach verrät A das Codewort an B. 2b. Unabhängig davon verrät X das Codewort an den anderen Hawaladar M. 3a. B nennt M das gemeinsame Codewort... 3b. ...woraufhin M weiß, dass B das Geld erhalten darf, und es aushändigt. Legende: blau = Codewort wird mitgeteilt, rot = Geld wird übergeben. Gezeichnet mit dia, Version 0.96.1 Siehe auch File:Hawala.svg. English: Example for the Hawala banking system: Person A wants to transfer money to person B, using the services of the "hawaladars" X and M. 1. A hands the money (red) to his hawaladar X and also tells him the code word (blue). 2a. Then, A tells B the code word. 2b. Independent of this, X tells the code word to M. 3a. B tells the code word to M... 3b. ...which shows to M that B is a legitimate receiver of the money, so he hands over the money to B. Legend: blue = shared code word is being told, red = money is handed over Created with dia, version 0.96.1 Also see File:Hawala.svg.
context_page_description: Banking or banking activity that complies with sharia —known as Islamic banking and finance, or shariah-compliant finance—has its own products, services and contracts that differ from conventional banking. Some of these include Mudharabah, Wadiah, Musharakah, Murabahah, Ijar, Hawala, Takaful, and Sukuk.
  Sharia prohibits riba, or usury, defined as interest paid on all loans of money. Investment in businesses that provide goods or services considered contrary to Islamic principles is also haraam.
  By 2014 around $2 trillion in financial assets, or 1 percent of total world, was sharia-compliant, concentrated in the Gulf Cooperation Council countries, Iran, and Malaysia.
context_section_description: Hawala (also Hiwala, Hewala, or Hundi; literally transfer or sometimes trust) is a widely used, informal "value transfer system" for transferring funds from one geographical area to another, based not on movement of cash, or on telegraph or computer network wire transfers between banks, but on a huge network of money brokers (known as "Hawaladars") located throughout the Muslim world. 
  According to the IMF, a hawala transaction typically transfers the value of money (or debt) but not corresponding cash, from one country to another. 
  Unlike other Islamic financial products, hawala was not started as an alternative to conventional banking transfers since electronic wire transfers have not been found in violation of sharia, 
  and Islamic banks also use electronic wire transfer. 
  However, hawala has the advantage of being available in places wire transfer is not and of being able to avoid trade-related levies on the recipient such as customs duties and consumption taxes.
  The hawala network operates outside of, or parallel to, traditional banking, financial channels, and remittance systems, but predates it by many centuries. In the first half of the 20th century it was gradually replaced by the instruments of the conventional banking system, but became a "substitute for many banking products", as Muslim workers began to migrate to wealthier countries to seek employment in the late 20th century, and sought ways to send money to or secure a loan taken out by their family back home.  Dubai has traditionally served as a hub.
   
  Each hawala transaction takes place entirely on the honour system, and since the system does not depend on the legal enforceability of claims, it can operate even in the absence of a legal and juridical environment.
  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. Hawaladars are often small traders who work at Hawala as a sideline or moonlighting operation. 
  Hawala is based on a short term, discountable, negotiable, promissory note (or bill of exchange) called "Hundi". The Hawala debt is transferred from one debtor to another. After the debt is transferred to the second debtor, the first debtor is free from his/her obligation.
  As illustrated in the box to the right,  (1) a customer (A, left-hand side) approaches a hawala broker (X) in one city and gives a sum of money (red arrow) that is to be transferred to a recipient (B, right-hand side) in another, usually foreign, city. Along with the money, he usually specifies something like a password that will lead to the money being paid out (blue arrows). (2b) The hawala broker X calls another hawala broker M in the recipient's city, and informs M about the agreed password, or gives other disposition instructions of the funds. Then, the intended recipient (B), who also has been informed by A about the password (2a), now approaches M and tells him the agreed password (3a). If the password is correct, then M releases the transferred sum to B (3b), usually 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. Transactions may completed in as little as 15 minutes.
caption: Hawala example transaction; see text for an explanation
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