William & Mary Business Law Review


Arya Hariharan


Hawala networks, or Informal Funds Transfer Systems (IFTS), are age-old means of conducting cross-border financial transactions. They thrive in regions where there is inadequate or nonexistent financial infrastructure due to poverty, daunting geography, or endemic conflict. Such regions are home to poor and underserved communities hungry for and in desperate need of financial services. IFTS provide access to these relatively ignored markets through the use of specific transactional mechanisms, payment modalities, and clearing and settlement options. With these innovative and flexible techniques, IFTS have successfully tapped into the exponentially growing global remittance market. Hawala networks are also used by NGOs and humanitarian aid organizations operating in post-conflict regions, and by diaspora communities looking to provide vital services for family members in their country of origin. IFTS, however, can also be illegitimately used for smuggling, capital flight, or terrorist activities. Formal financial institutions can learn how to better access the remittance market and serve remote or poor communities by learning from the key operational characteristics that make IFTS so successful: speed and efficiency, accessibility and adaptability, affordability, anonymity, cultural sensitivity, and relational contracts. Understanding these operational characteristics can allow for innovative, Hawala-inspired inclusion techniques to be incorporated into the formal infrastructure. Mobile banking, adaptive financial procedures and services, broad integration, and a shift in the banking culture would not only allow for formal financial institutions to gain access to the lucrative remittance market, but would also improve access to financial services for the poor and underserved.