Good money bad money

FROM THE DEALER’S DEN: It works. It’s safe. It’s hassle-free. Better still, it assures just-in-time delivery. Sorry guys, we aren’t talking Western Union. And we aren’t talking legit. But, who cares? Hawala, India’s age-old system of money transfer, is here to stay. And the law may well be an ass. Thank you!

For all the spread of the banking system and authorised money changers, the fact is the hawala mode (or hundi) remains the backbone of the sub-continent’s parallel economy, variously estimated at 30% to 50% of the white economy.

Enforcement officials may despair but folks in the business say there’s no stopping such transactions — hawala will keep growing as long as it remains cost effective, efficient, reliable, free from bureaucratic hassles and most important, no questions asked on the source of funds. Let India’s policy-makers wait.

Boasts Jai Singh a Delhi-based hawala operator: “I got into this trade in the early ‘90s. Though initially there was a problem of trust with customers, now I have 50 to 70 dedicated people who use my services, and through them, I have been able to get lot of business.

In fact, people from as far as Jaipur and Chandigarh use my services. My people collect money from their homes. They don’t have to queue up at a bank and the money is delivered to the recipients at their doorsteps.”

Adds Gurpreet Singh another hand in the trade: “This whole business is based on trust and that takes a lot of time for us to establish. Once we do it, there’s no looking back. Though there’s no set earning in this business, I make two to three lakh a month.”

Hawala transactions are always cost-effective because of low overhead costs. Most often, it’s a side-business for those in organised and well-established trades — travel agents, jewellers or money changers. Dubai, home to a large number of Indian and Pakistani expatriates, and known for its huge gold market that caters to the sub-continent’s customers, is the hub of hawala transactions.

But, the Great Indian Diaspora is invigorating the system in every corner of the world. Says Ranbir Singh a retired government employee: “My son is settled in the US for past 25 years. He sends me money every two to three months. Normally, the money reaches us in 24 hours and there are no hassles. My son has been using this money changing guy for the past eight years and there’s been no problem.”

Stats available with the International Monetary Fund pegs global money laundering at above $590 billion. Not all of that is hawala. Money laundering is a key driver. But it’s the only one. It’s faith.

In many cases, the source of the fund is legitimate, but people adopt the hawala route because it’s convenient, it’s fast and if it’s an established operator, not very risky either. Best of all, there’s no red tape, no need for a bank account or permission from the RBI. Forex regulations have been vastly relaxed, there’s no bar on almost any kind of current account transaction.

But the time and energy spent on getting the various permissions makes hawala a favoured route for many. “I would have expected hawala to have disappeared after all the relaxations we’ve seen, but I guess there is a section of the population to whom it will always have an appeal,” says Jamal Mecklai, CEO, Mecklai Financial.

Government agencies know this, but often turn a blind eye to this kind of hawala and target what’s usually referred to as ‘black’ hawala, associated with serious offences such as narcotics, trafficking and fraud.

Says Ravi Khaturia a chartered accountant: “There are many problems that people face when they want to send the money. Say someone has cash here in India and wants to send it to Dubai. Hawala is the only way with NO questions asked. And now, with the economy growing and many more Indians living and travelling abroad, hawala’s become a big-time money transfer system.”

Hawala has been part of the Indian system since time immemorial. It was rampant in the earlier days when there were restrictions on import of gold, forex regulations were much more stringent and tax rates much higher. Since then, the share of such transactions in total remittances (both inward and outward) has come down.

But given the dramatic increase in global capital flows, greater global prosperity and movement of people, the absolute volume of hawala transactions has increased. There are no official estimates — either by the financial intelligence unit of the ministry of finance or the RBI. But market players variously estimate the total hawala industry at around Rs 2,000-Rs 3,000 crore for both black and white transactions.

Originally associated with South Asia and the Gulf, hawala is now a global phenomenon. Expatriate communities who had migrated to Europe, West Asia and North America use this system to send remittances to their relatives in the subcontinent, East Asia, Africa and eastern Europe. Hawala has various names — Fei-Ch’ien (China), Padala (Philippines), Hundi (India), Hui Kuan (Hong Kong), and Phei Kwan (Thailand).

Clearly, a more relaxed forex regime has not helped curb the menace. So, perhaps, the government could try another route. It could try and bring hawala within the system by recognising it as a distinct business and framing a few simple rules and regulations.

Today, the authorities are thinking of licensing and regulating money lenders; so why not hawala operators too? Believe it or not, that unlikely suggestion comes from a senior government official who’s spent years trying to tackle hawala ...with little success.

(Names used in this story have been changed)