Money Transfer From India

A few years ago, if a construction worker in a Mumbai wanted to send money to his nephew in Dubai, he would have gone to a shop in one of his city's seedier districts. There, he'd hand cash in Indian rupees to a broker in return for a secret code. His nephew would then go to a shop in Dubai, say the code and take the equivalent amount home, in dirhams.

This system of transferring money is called Hawala. It has several other names in different countries, such as hundi in some places, but the basic idea remains same: money never actually crosses borders. In our example, the broker in Mumbai takes the cash, then another broker in Dubai gives out the same amount in dirhams after taking a commission. The system works essentially through an underground network. A handler in one country accepts cash from a customer and then a handler in another country will hand out the equivalent amount (minus commission) overseas.

Each handler ensures that the inflow and outflow of money is more or less balanced, once commission is taken into account. Because money never crosses borders, handlers cut out the expensive international bank transfer fees. Further, because the entire system is done via informal agreement, access to bank accounts aren’t required for any parties. Hawala is based on trust.