Hawala is a method of money transfer that has been in vogue for a very long time. My home district, Kozhikode, is one of the foremost centres for Hawala operations in Kerala1 and therefore I can tell you how they operate .
Suppose, you want to transfer one lakh rupees to a friend of yours in Dubai. You have two options. Either, do it through financial institutions like Western Union Money Transfer or an authorised bank. This method has higher transaction charge and it also makes your money accounted for.
If you want to incur a very low transaction charge and also keep your transaction away from the eyes of authorities, then your other option is to contact a hawala operator.
When you contact the hawala agent, he will quote the amount that you will have to pay him as commission for this transaction. The usual charges, from what I gather, are rupees fifty per lakh. Once you agree to this, the hawala agent will quote a unique number to you, after taking your money to be transferred. The usual method used for quoting this unique number is to take the number of a currency note. This number will be your transaction id from now on. Without this number, you will not be able to receive delivery of your money at your intended location.
As soon as you are given the unique number, the hawala agent will message his counterpart in Dubai, this number. These days, encrypted messengers like WhatsApp and Telegram are used for sending this number. Your recipient in Dubai can go to the hawala agent in Dubai and collect this money after quoting the currency number.
There are two major things that you should note in this transaction.
- There is no person specificity to the transaction. Whoever goes and quotes the unique number to the Hawala agent will receive the money.
- There is no real transfer of money that is taking place. In the accounting books of the hawala agent you contacted, he will add a credit in the name of the Dubai agent. Next time the agent in Dubai wants to send money back to you, his account is debited.
Thus the anonymous nature of these transactions makes it a very attractive proposition for terrorist activities, money laundering etc.
Hawala operations are illegal. However, with the emergence of cryptocurrencies, I am quite sure that hawala operations will soon find new ways to stay afloat.
PS: Another fun fact. In the book of accounts of Hawala operators, they write the amount without the last two digits. Therefore, an entry of 1000 in fact is an entry of 100000. Bigger agents may shave off even more zeroes. It helps in two ways. It makes calculations easy. Even if the books of account are seized, the amounts will seem trivial.