how does hawala work let s say maryam needs to send 200 to amir who lives in another country she will approach a hawaladar nasir and give him the amount of money she wants amir to receive including the details of the transaction the name of the recipient city and password 
nasir contacts a hawala dealer in the recipient s city muhammed and asks him to give amir 200 on the condition that amir correctly states the password muhammed transfers the money to amir from his own account minus commission and nasir will owe muhammed 200 the transaction initiated by maryam and concluded by amir s receipt of the funds takes only one to two days or in some instances just a few hours no money is moved and no ious are signed and exchanged by nasir and muhammed as the hawala system is backed only by trust honor family connections or regional relationships hawala provides anonymity in its transactions as official records aren t kept and the source of money that is transferred can t be tracked because money laundering aims to hide the source of cash that is generated from illegal activities hawala is often used as a system for money laundering hawala and illegal activitiesthe very features that make hawala an attractive avenue for legitimate patrons also make it attractive for illegitimate uses thus hawala is frequently referred to as underground banking this is because money launderers and terrorists take advantage of this system to transfer funds from one location to another in addition corrupt politicians and the wealthy who would prefer to evade taxes use hawala to anonymize their wealth and activities cash generated from business transactions that aren t recorded can t be taxed hawala is also used to fund terrorism which makes it more difficult to stop terrorism a large portion of discovering terrorist cells involves tracing the movement of money as terrorist organizations are funded and need money to buy weapons and feed their people hawala transactions make this movement of money easy as there is no paper trail from the source of funds to the terrorist organization 3hawala and government regulationbecause hawala transfers aren t routed through banks and hence aren t regulated by governmental and financial bodies many countries have been led to re examine their regulatory policies in regard to hawala for example in india the foreign exchange management act fema and the prevention of money laundering act pmla are the two major legislative systems that deter the use of hawala in the country india prohibits informal hawala transactions and people from entering into them by strictly defining the types of transactions not allowed which include the creation or procurement of any asset outside india 45in pakistan informal hawala transactions are prohibited as well the country specifies what entities are allowed to make remittances and currency exchanges there are laws in place that require money changers to register and comply with regulations to become foreign exchange companies within two years and if they don t register they aren t allowed to operate afghanistan s more than 300 money exchangers have organized themselves into a self regulatory body that has created rules and regulations that all members must comply with it has been more difficult for the country to bring unregistered money exchangers into the fold to prevent illegal activities through hawala exchanges some countries have made hawala illegal due to the difficulty of enforcing regulations most countries have laws related to informal funds transfer systems like hawala that seek to curb the negative activities created by such a system hawala and fintechsome fintech companies are implementing the hawala system in providing financial services to the unbanked and underbanked populations of the world mobile banking and payment platforms such as paga and m pesa are revolutionizing the financial system in certain african countries by promoting financial inclusion through the hawala system of financial services 6