Hawala as credit: recognizing how hawala supports the business climate in Afghanistan
| DOI | https://doi.org/10.1108/JMLC-07-2019-0053 |
| Pages | 224-244 |
| Published date | 20 January 2020 |
| Date | 20 January 2020 |
| Author | Haroun Rahimi |
| Subject Matter | Financial risk/company failure,Financial compliance/regulation,Accounting & Finance |
Hawala as credit: recognizing how
hawala supports the business
climate in Afghanistan
Haroun Rahimi
Department of Law, American University of Afghanistan, Kabul, Afghanistan
Abstract
Purpose –The purpose of this studyis to explore the role of hawala in supporting Afghanistan’s business
climate.It illustrates the use of hawala as credit and its importance for the local merchantcommunity.
Design/methodology/approach –The empirical data presented in this article draws from more than 83
semi-structured interviews with Afghan merchants, business leaders, hawaladars and judicial officials,
conducted between March and August 2017 in five major provinces of Afghanistan, namely, Kabul, Herat,Balkh,
Nangarhar and Kandahar. These five provinces collectively represent half of Afghanistan’s economy, one-third
of Afghanistan’s total population and more than four-fifth of Afghanistan’s urban population. The commercial
courts that sit in these five provinces hear more than 90% of total commercial disputes in the country.
Findings –In Afghanistan, despite their reputation for being the bankers of terrorists and criminals,
hawaladars primarily serve Afghan merchants –the overwhelming majority of their customers –helping
them cope with an uncertainbusiness climate. Within supply chains, Afghanimporters rely on credit-hawala
to protectthemselves from the interruptions of cash flow that are prevalentthroughout the Afghan economy.
Practical implications –Drawing on extensive field research, this article highlights how hawala
stabilizes financing and markets in Afghanistan, arguing that while hawala regulations are necessary to
counter abuse of hawala, regulators must be cognizant of how hawala is used in financing of legitimate
businesses,or they will exacerbate the problems of access to credit.
Originality/value –While the historicalstudies of hawala reveal its inextricable link with trade financing,
the current hawala literature completely neglects hawala systems’contemporary financing role. Instead, the
literature is completely dominated by the globalization trend of terrorism, money laundering and worker
migration. Neglectingthe trade financing role of hawala causes policymakersnot to appreciate the impacts of
hawala regulationson the trade fully. Overlooking hawalas’rolein financing transnational trade also results
in the exclusion of an importantgroup of stakeholders –namely, merchant-users of hawala services who are
the main beneficiaries of hawaladars’financing services –from the process of regulationof hawala systems.
The main reason that hawalaregulations have failed to gain tractions in countriessuch as Afghanistan is that
these regulationshave not been cognizant of the multifacetedfunctions of hawala markets and do not include
all stakeholdersin the regulation process.
Keywords Credit, Afghanistan, Institutional reform, Hawala,Hawala regulation, Anachronism
Paper type Research paper
When you sell in Afghanistan and get paid weekly but buy in China where you have to pay in
advance or immediately, you have to work with hawaladars. You need hawaladars to give you
credit so you can make the large payments to your suppliers. Then you can pay hawaladars as
you collect the money throughout weeks when you are paid by your customers in Afghanistan.
Hawaladars allow you to bridge the gap between a cash-based market and a credit-based market.
A Kabuli cellphone merchant
Hawala is an ancient system of remittancethat originated from South Asia; however, for an
anachronism, it has proven to be very adaptive and continues to play an important role in
JMLC
23,1
224
Journalof Money Laundering
Control
Vol.23 No. 1, 2020
pp. 224-244
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-07-2019-0053
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
the economic health of many less-developed countries, especially in South Asia where it
originated. Hawala provides a user-friendly and inexpensive, but opaque, way to move
funds within a dense network of hawaladars[1]across disparate locales[2].
Hawala was originally used to facilitate long-distance trade. By this method, hawaladars
would issue, negotiate and discount bills of exchange issued in a variety of currencies,
enabling merchants to safely move funds along the Silk Road (El Qorchi et al.,2003).
Recently, with the globalization of labor markets and the concomitant expansion of labor
migration (especially from South Asian countries to Gulf countries) hawala remittance has
emerged as the method of choice for migrant workers remitting a portion of their income to
their families (Viles,2008;Ballard,2003, 2005).
Hawala’s opacity has made it attractive to those who wish to move funds covertly to
finance terrorism or other illegal activities or launder the proceeds from these illegal
activities (Keene, 2007;Passas, 2003;Thompson, 2006;Schneider, 2010;Financial
Action Task Force, 2013). Thus, terrorism financing and money laundering are two
other globalization phenomena that have come to use the hawala remittance system as
an integral part of their illegal financial activities. Because of its entanglement with
illicit funds, hawala has been considered an impediment to combating the influence of
illegal activities. To counter this negative role of hawala in the financial system,
regulators have adopted anti-hawala policies in different countries. These policies have
ranged from complete outlawing of the practice to a series of licensing and
transparency-enhancing measures (Daudi, 2005). These policies have often had modest
success. In most cases, given the scarcity of reliable data, the full impact of hawala
regulations on the economic life of the hawala-users has not been completely
understood. This article sheds light on this system and the unrecognized utility of
hawala in Afghanistan, namely, for supply chain financing. Indeed, Afghan merchants
regularlyrelyonhawala markets for ac cess to working capital financing in a highly
volatile business climate[3].
This article neither addressesthe different approaches to regulating hawala markets nor
discusses ways in which hawala regulations could counter the flow of illicit funds while
minimizing the adverse effects of such regulations on the legitimate hawala-users –I will
cover those aspects in another article. Similarly, this article does not focus on migrant
workers or the connections hawala markets have with terrorist networks and organized
crime. Those nexuses have already been thoroughly established and examined in the
literature (Schneider, 2010). Instead, this article focuses on just the merchant-user who is
dependent on the hawala system for its credit aspects, using hawalato mitigate the adverse
effects of uncertaintyin the business environment.
The themes of the current literatureon hawala can be divided into four categories:
(1) the use of hawala by terrorist groups and syndicates of organized crime to finance
their illegal activities and/or launder their proceeds (Keene, 2007;Passas, 2003;
Thompson, 2006;Schneider, 2010;Financial Action Task Force, 2013);
(2) the use of hawala by immigrant workers to remit a portion of their income to their
families (Viles, 2008;Ballard, 2005);
(3) the informal institutional arrangements that allow the hawala system to function
without formal legal protection (e.g. the role of trust) (Ismail, 2007;Schaeffer, 2008;
Gräbner et al., 2017;van de Bunt, 2008); and
(4) the appropriate regulatory response to the ills of hawala (Maimbo, 2004;Passas,
2003;Daudi, 2005;Siddiqui, 2014).
The business
climate in
Afghanistan
225
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