How does the Hawala money transfer system work?

21.03.18
5 minute read
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You may be wondering what Hawala is. Or maybe you’re sending money abroad and are wondering if Hawala is safe. Regardless of your question, this article should help you understand what Hawala is, what it isn’t, and how you may be able to take the best parts of Hawala to send money abroad. Legally. At a fair price. But more on that later.

What is a Hawala transaction? How does the Hawala money system work?

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.

While Hawala may sound like a dream come true to some, there’s a caveat. A big one. Hawala is illegal.

Because transactions are made outside the conventional banking system and all the regulations that come with it, Hawala has become infamous as an easy way to fund dangerous and suspicious activities. Following the September 11th attacks in the US, many countries began mandating that all money transfer services keep accurate records of financial transactions. Despite this, Hawala remains a bit of a gray area, and many users are becoming more wary of using it.

Is TransferWise a Hawala broker?

Banks and money transfer providers often give you a bad exchange rate to make extra profits. And Hawala, with its illegal money system, leaves users exposed to the possibility of fraud or funding not-so-great activities.

TransferWise is different. Its smart new technology skips hefty international transfer fees by connecting local bank accounts all around the world. Not only that, but TransferWise gives you the real exchange rate, the same one you find on Google.

TransferWise takes what’s good about Hawala and marries it to strong and reliable banking regulations that keep your money safe. Like Hawala, TransferWise uses peer-to-peer system to send money abroad, but with bank accounts. However, unlike Hawala, TransferWise is not informal, nor outside the banking system. In fact, quite the opposite. In order to operate, TransferWise is licensed by local financial regulatory bodies of each country, such as the FCA in the UK or the MAS in Singapore.

TransferWise only accepts money from bank accounts belonging to the sender, and transfers are normally paid into the TransferWise system using a debit/credit card or a local bank transfer. TransferWise then sends money to the recipient’s bank account in an accredited bank in the receiving country. To ensure your money’s safety the entire process is strictly governed by the same financial laws that regulate banking institutions.

So, in a way, Hawala works because it avoids the banking system. But, on the flip side, Hawala is unsafe because it avoids the banking system. TransferWise chooses the part that works. Like Hawala, TransferWise avoids the expensive, traditional banking method that sends money internationally using costly SWIFT transfers. But, at the same time, TransferWise uses the local banking system in respective countries to keep the money safe, cut down on international fees, and to prevent misuse of the money sent and received.

What can I do with TransferWise?

If you’re in need of sending money abroad, you may be wondering if TransferWise is right for you. In that case, there are a number of questions people ask before they get started.

How much does it cost to send money with TransferWise?

If you send money abroad with a normal bank, you’ll often find that, with the traditional SWIFT method, correspondent banks deduct chunks of your money along the way. Because TransferWise uses local banks to send and receive money, these international SWIFT fees are avoided altogether.

Instead, TransferWise has a small percentage fee (starting as low as 0.35%) noted upfront. Before you make the transfer. You can check out the TransferWise pricing page to find out exactly how much it will be.

What kinds of exchange rates does TransferWise offer?

TransferWise works to get the most accurate exchange rates from all over the world. As a result, TransferWise directly downloads independently provided exchange rates from Reuters. Rates are updated every minute to reflect the cost of currency exchange in the most accurate manner possible.

Unlike most banks and money transfer services, TransferWise does not mark up the wholesale exchange rate. You get the real one. The same one you’ll find if you Google the currency pair. Check our exchange rates and see for yourself.

How fast does TransferWise get money from one place to another?

Much depends on the country. But, on average, most transfers are completed inside 1-2 business days. Although some transfers, like from the UK to the EU, often take only a few seconds. Regardless, you’ll get an estimate before you even start your transfer to tell you how long it will be. Plug in your currencies and amounts and see your delivery estimate on our main page.

How do you pay for a TransferWise transfer?

On the final steps of setting up your transfer, you’ll find a variety of payment options depending on the currency and amount. For smaller amounts, you’ll generally see an option to pay by credit/debit card. If the amount is larger, you will often be asked to pay by bank transfer from your own bank account.

How does the recipient get the money?

TransferWise’s system is bank to bank. Meaning your recipient will need to have a bank account in the respective country where you’re sending the money. Ask them for their local banking details, fill them in when you set up your transfer, and we’ll take care of the rest.

What are the limits of the amounts I can send money internationally with TransferWise?

For most routes (with a few exceptions) you can often send the equivalent of 1,000,000 GBP.

Got any more questions? Check out our help site.

Otherwise, find out how to get started today.

This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.

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