Hawala System in Afghanistan: Practice and Regulation

Abstract

Hawala system is a traditional value transfer system that is widely used in Afghanistan. While the modern banking systems exist in the country the question on the factors contributing to the use of Hawala system is inevitable. Additionally, one might be curious what role Hawala system plays in economy of the country and to what extend the regulation on the system is implemented successfully. A small survey of Hawala customers along with in depth qualitative interviews conducted with Hawaladars show that a variety of factors are involved in popularity of Hawala system including its simplicity, cost effectiveness, speed, and lack of knowledge about formal modern transferring systems e.g. Money gram, Mobile Money, SWIFT and Money Gram. In addition, Hawala system is a far reaching system comparing it to Banks. The previous researches on Hawala system indicate Hawala system is not only practiced in Afghanistan but around the globe. However, countries seem to view the phenomenon very differently. For instance, India has banned the system; England has introduced a relatively light regulation while Norway has a restrictive regime on Hawala system. Afghanistan has regulated the system as well making sure that Hawala system is not used for money laundering and financing terrorism. Although positive views exist regarding the regulation of Hawala system in Afghanistan, the implementation of the regulation and laws regarding the system is controversial yet. Knowing that Hawala system has very helpful role in life of people in the country, the government of Afghanistan has increased their monitoring of Hawala system in order to successfully fight against criminal use of the system including money laundering and financing terrorism. However, the complete success in weakening money laundering and financing terrorism has not been achieved yet.