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Hawala (wikipedia.org)
200 points by robbiet480 on Nov 4, 2013 | hide | past | web | favorite | 55 comments



I almost linked to this, too, in the "Western Union says Bitcoin is not ready for international transfer" discussion[1].

The interesting thing about Hawala is that it provides a ready source of liquidity in local currencies. If someone was to link the two (ie, a local Hawala agent accepted a Bitcoin transfer from an untrusted source, and then moved the money via the trusted Hawala network) then almost all the problems of Bitcoin would go away.

It would also set just about every TLA agency in the US looking at you (Semi-anonymous crypto-currency which has been used in drug markets + untracable Islamic money transfer network? There's a techno-thriller plot right there). OTOH, Hawala agents seem to ignore US laws at the moment, so they might not care about this either.

[1] https://news.ycombinator.com/item?id=6665635


Hawala and other informal networks are accounted for 40% of the remittances sent every year.[1] USD 534 billion were sent in 2012 via formal networks.

Analyzing the remittances flow and their impact in the receiving countries (often more in term of %GDP than official intl development aid), it's a shame that the global average fee to "remit" is 9% and up to 12% while sending money towards Sub-Saharan Africa. [2]

But that's a fast moving market with several technological and business model innovations (and some YC startups too.

This last years, we have seen a lot of startups with interesting ideas based on new technologies or new business model to improve the remittances market: Azimo (http://azimo.com), Xoom (https://www.xoom.com/), Regalii (https://www.regalii.com/ - send good instead of cash, YC), Transferwise (http://transferwise.com) and new technology like mobile banking (M-Pesa, MTNMMO) and bitcoin (buttercoin YC - http://buttercoin.com/).

Disclaimer: I work on TawiPay (http://tawipay.com) as a side-project, a comparison website for remittances services.

[1] http://www.scribd.com/doc/150342765/Trends-in-Remittances-Ju...

[2]https://remittanceprices.worldbank.org/sites/default/files/R...


Al Jazeera had a good story a while back about migrant workers in South Africa being unable to send money home to Zimbabwe because of huge fees for small amounts, and they have to have ID which costs their whole paycheck


Yeah, South-Africa > Zimbawe is one of the most costly corridor in the world. Starting at 20%...


> If someone was to link the two (ie, a local Hawala agent accepted a Bitcoin transfer from an untrusted source, and then moved the money via the trusted Hawala network) then almost all the problems of Bitcoin would go away.

http://www.ripple.com


Does it work everywhere?


I think the question is, "Is there a ripple gateway for my location/currency"


That's a very interesting thought, nl.

Have a look at Eko (http://eko.co.in). Eko is creating a network of trusted agents to service cash-in/ cash-out/ money-transfer needs of billions of non-tech-savvy customers.

The cue given by you could be an interesting opportunity for companies like Eko to explore.

Kenya's m-Pesa is a similar network of mobile money agents that indeed started accepting Bitcoins recently [2]!

[2] http://www.mobilepaymentstoday.com/article/216119/M-PESA-mee...


Thanks, but it hardly takes a genius to point it out (probably should have patented it though..).

It's pretty clear that the "bitcoin<->local currency" market is a big one, but dangerous to get into because of regulatory risk. Any players who can avoid that risk somehow have a big advantage.

OTOH, if you actually want your mind blown then watch [1]. That's a video of Brad Fitzpatrick pointing out that the Bitcoin protocol allows things like implementing Kickstarter in the Bitcoin protocol itself, or - more relevant to this discussion - things like "Party A pays Party B, but only if Party C vouches for it, and Party C cannot receive the money".

[1] http://www.youtube.com/watch?v=sYukPc0y_Ro#t=970


One important thing to know is that in islamic banking, interest or anything that exploits time value of money is considered usury, and is haraam (sinful). There exists a whole institution of islamic banking compliant with shariah law.

From gift giving for usage of money such as hibah to good will repayment of debt such as qardul hassan where the debtor may repay more than the principal amount, islamic banking seeks to avoid interest (riba).


It used to be this way with/amoung Christians (in the middle ages). But non-Christians could lend to Christians. That meant Jews were able to lend to Christians.

People often did 'hacks' against it, such as using pawn shops. Many cities in Europe have a "Lombard Street" based on this ( http://en.wikipedia.org/wiki/Lombard_banking )


So San Francisco is not the only city with a remarkably crooked Lombard Street?


I wonder if that is the source of the street's name...


Unlikely. San Francisco is a young city (by european standards), and is younger than when there was Lombard Banks. It's more likely that when people were naming streets they just picked a nice name (or a familiar name), rather than naming it after the local Lombard Bank that was there.


It's hard for me to escape the feeling that Islamic banking replaces usury with hypocrisy, but I guess high-context Cultures could probably make the same argument in reverse.


For a real laugh, check out Shabbat elevators or the eruv:

http://en.wikipedia.org/wiki/Shabbat_elevator

http://en.wikipedia.org/wiki/Eruv


I don't think it's appropriate to make fun of somebody else's culture "for a real laugh," but these links were interesting anyway. So, thank you.


It's perfectly appropriate, provided you're not Jewish.


Not sure that it is very different from Christianity and many other religions who banned charging interest, but then changed their minds/their definition of usury. The wikipedia page makes an interesting read:

https://en.wikipedia.org/wiki/Usury


Where's the hypocrisy in that? Perhaps I'm just being dense, but I fail to see the connection.


When paying a gift instead of interest, is the "gift" obligatory by any chance? Is it the same thing under a different name?


Islam forbids interest of all kinds. So if you are taking a gift in lieu of interest, that would be forbidden as well. Of course not everyone follows the rule to the letter but that doesn't change the fact that the rule exists and there are people who take it seriously.


This system is commonly implemented in Pakistan by a Service called "Easy Paisa" (translated: Easy Money). Where you can just deposit money at a certified corner store with your National ID card and password. and then the recipient can get it from their own corner store. The strength here is the ubiquity of the service. it's everywhere! And when i say everywhere, i mean even in rural areas! There ads actually build on the ability of the breadwinner of the family, working in the city, to send money to his family back in the village.

Recently, another major use is small businesses which operate as FB pages, collect money from customers using this and then send the goods. Convenient for both sides, as you avoid the hassle of depositing money in banks, or the risk of a badly implemented Online Credit Card system.


http://www.treasury.gov/resource-center/terrorist-illicit-fi...

The first few pages are a very readable, understandable description of how the system works in layman's terms. Recommended read.


I work for quite a big Hawala system (www.bakaal.com.au) and were thinking about implementing bitcoins. Moving through the legislation is the biggest stumbling block.


If you reach the bitcoin community, probably, you will find help. The community is really friendly towards the spread of bitcoin use.


Deflationary pressures tend to do that. I wonder if they're motivated enough to "stimulate the economy"


Email?


I've heard this system compared to the old Renaissance Medici double entry banking system. It's possible that Italian bankers learned about this system and saw it as more secure than moving boxes of money and valuables around thus establishing the foundations of modern banking.

http://en.wikipedia.org/wiki/Medici_Bank

It's also pretty much how Western Union works.


Yep! That was one of the realizations that dawned on me as I was writing that article in 2006 and carefully reading through de Roover's description of how the home Florence branch would transact with the foreign branches using drafts and other instrument: "hey, this is just like hawala! They would spend each other's money and occasionally balance the books with import/export deals."


interesting, i wasn't aware that the medicis pioneered the double entry accounting methods.


I don't see how this is so different than our usual Western banking system, except that it's less regulated and more customer-friendly.


I have no idea why you were down-voted. I think you're right.

For example: The Wikipedia article claims that the Hawala system is unusual in that no promissory notes are exchanged. However, directly after that, the article explains how extensive notes are kept on how much the brokers owe each other, and that there are some forms of final settlement between brokers. These notes on mutual indebtedness appear to play an identical role to promissory notes.

This is really no different than the final settlement between banks in the Western system, except that - as you wrote - it appears to be less regulated.


In india it is used extensively and very often, we some times call them "Aangadiya" they transfers the money for very little cost ex. i have sent 25K INR with only 50rs extra as charge, which is basically 0.2 percent. And its accuracy and speed is amazing.


"The word angadia means courier in Hindi, but also designates those who act as hawaladars within India. These people mostly act as a parallel banking system for businessmen. They charge a commission of around 0.2–0.5% per transaction from transferring money from one city to another."

<= Wow I remember as kid, going to an "Angadia" office with my dad to transfer money. Didn't understand any of it back then.


So it's pretty much like Ripple.

http://ripple.com


It's more like the original Ripple concept:

https://classic.ripplepay.com/


Has the concept really changed since then?

https://ripple.com/how-ripple-works/

As far as I know, Ripple still works the same way as it did then.


Note that Hawala is really not that different from Western Union: http://scholarlycommons.law.northwestern.edu/cgi/viewcontent...


Transferwise operates a very similar model for currency exchange: you send them Dollars to convert to Euros and they match you to people who need the opposite. I guess their model is a bit different in that the exchange only happens once a second party is found, but I think a peer to peer system makes even more sense when converting between currencies, as there is literally no way to turn actual Pound Sterling into Euros, so physical transfer is out of the question.


I'm working on an RFC for an Internet protocol that works like Hawala: https://github.com/mleonhard/hipp


Have you heard of the Ripple 2-phase commit protocol?


Interestingly, the word for wire transfer in Turkish is "havale", which I imagine is borrowed from this.


Guess West just learnt about it despite of Asians have been using this to transfer money back to home.


I've always thought Dwolla was named after this. No?


Unrelated side note: I posted this but my Android app gave an error so I thought it didn't. I only found this by the @newsyc50 account on Twitter.


This is what bitcoin is great for and will be used for. Medium for transfering the purchasing power, not for storing it.


Actually, bitcoin as scarce money is pretty much as directly opposed to this as you can get. If you want to make a digital currency comparison it's more like Ripple's trust networks (minus the XRP).


>After the September 11, the American government suspected that some hawala brokers may have helped terrorist organizations [...] since confirmed that the bulk of the funds used to finance the assault were not sent through the hawala system, but rather by an official inter-bank wire transfer to a SunTrust Bank in Florida, where two of the conspirators had opened a personal account.

>However as a result of intense pressure from the U.S. authorities, widespread efforts are currently being made to introduce systematic anti-money laundering initiatives on a global scale, to better curb the activities of the financiers of terrorism and those engaged in laundering the profits of drug smuggling.

The interesting thing about this line of logical failure is the possibility that a Hawala wouldn't work to transfer funds to terrorists, they had to use a de-personalized banking system that doesn't really care what they're doing with the money, unlike the Hawala system where the agents have to consider the impact of their actions on their network/family.

Of course, such a logical failure that just happens to further secure the power of established banks against other systems, "logical failure" is a generous judgement of what was going on.


Very interesting! I find it very helpful to know the different cultures of the world.


why do people post wikipedia articles as news?


Why do you hate wiki? Many people don't know this exists, it's interesting and disruptive. This could be a great startup idea too.


It's not that it's uninteresting. It's that it's posted without context or commentary.


Hawala sounds a lot like Bitcoin (with maybe an extra layer of intermediation tossed in).


Flag and move on, please.




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