Hawala is an unofficial method of sending money that doesn’t depend on banks or formal financial systems. Instead it operates through a network of money brokers known as hawaladars who manage the transactions. This system has been around for centuries and is built entirely on trust enabling money to be transferred without the need to physically move it. While hawala is used globally it is especially popular in South Asia the Middle East and North Africa. Hawala helps people in communities without access to regular banks send and receive money. However because it is informal it can also be used for illegal activities like money laundering and funding terrorism. 1. Historical Overview The Hawala system began in 8th century India where merchants used it to make cross-border payments easier.The word “hawala” is Arabic and means “transfer” or “trust.” Over time the system spread across South Asia and the Silk Road as carrying physical cash was risky due to theft. Even though modern banks have mostly replaced Hawala it is still used in many places where people don’t have access to banks or don’t trust them.Today Hawala is mostly used for legal reasons like personal or business transactions and money transfers by migrants. It allows money to be sent quickly but doesn’t keep formal records making it hard to track. Because of this it can also be misused for illegal activities. 2.How Hawala Works Hawala dealers also known as hawaladars work outside traditional banks and depend on trust close family ties and local networks. Their system involves several steps and is built on personal connections rather than formal banking processes. Starting the Process: A person in Country A contacts a hawaladar in the same country to send money to someone in Country B. Payment to the Hawaladar: The sender gives the hawaladar the amount they want to transfer along with a fee. This fee usually falls between 0.5% and 7% of the transfer amount depending on factors like the destination and type of currency. Contacting the Partner : The hawaladar gets in touch with another hawaladar in Country B who is located nearby the person receiving the money. Providing a Code: Once the transaction is set up the hawaladar in Country A gives the sender a unique code. The recipient will need this code to receive the money. Releasing the Money: After getting payment instructions from the hawaladar in Country A the hawaladar in Country B gives the recipient the money. The recipient just needs to show the code to collect it. Settlements Between Hawaladars: Once the transaction is done hawaladar A and hawaladar B will need to balance their accounts at a later time. This can be done in several ways such as:   Transaction Reversal : Settling balances by matching money coming in with money going out without moving cash physically. Direct Cash Transactions : Direct cash transfers between hawaladars often using cash couriers particularly in areas with minimal border restrictions. Balances Across Providers : Involving multiple hawaladars to balance payments across different locations. Keeping Track of Records : Some hawala operators keep basic records of their transactions but the amount of detail in these records can differ a lot. 3. Key Motivating Factors The hawala system is highly adaptable. Hawaladars are now using digital platforms and cryptocurrencies to make transactions faster and easier.It also remains a helpful option for migrants refugees and other groups who don’t have reliable access to regular financial services.Its worldwide network makes it easy for people to send money to other countries. However because of how hawala works it is often misused for illegal activities like terrorism drug trafficking smuggling and money laundering. This has led to demands for stricter regulation. 4.Illegal Practices Hawala’s key features such as anonymity lack of formal records and its trust-based system make it appealing to those involved in illegal financial activities. These crimes include: Drug Smuggling and Illegal Money Transfers : Drug dealers and criminal groups often use hawala because hawaladars usually don’t ask about where the money comes from or where it’s going. This makes it hard to trace the sender or receiver. In Afghanistan hawaladars might help move money between poppy farmers and opium buyers. Trafficking of Humans : The system can be used to make payments for human smuggling and trafficking helping move people across borders while hiding where the money comes from or goes. Funding Terrorism : Terrorist groups like Al-Qaeda and the Taliban use hawala systems to secretly transfer money and receive funds from other illegal activities. Similarly hawala is often used for illegal activities like bribery avoiding taxes and other fraudulent purposes. 4.1 Obstacles and Solutions Different countries have put in place various rules to control the use of hawala. These rules are different from one country to another. In some places hawala is illegal while in others it is allowed but regulated.For instance in the United Arab Emirates (UAE) and the United Kingdom hawala is legal as long as hawala operators register with their central banks and follow rules like anti-money laundering (AML) and know-your-customer (KYC) guidelines.In the US hawala was made illegal after 9/11 because the government believed that hawala operators might have helped transfer money to support terrorist groups. Strict rules can make hawala go underground without fixing why people use it.This can turn hawala into a bigger problem for law enforcement. Law enforcement struggles with hawala because it works across borders. Money can be sent without using official systems making it hard to trace where illegal funds come from or go.Hawala is hard to investigate because it’s anonymous relies on trust between hawaladars and works through informal deals.This is especially true in places where rules are weak or not well enforced. Hawala operates worldwide but international rules are often inconsistent. Still regulations are important to stop illegal activities and ensure financial stability according to Grey Dynamics an investigative media publication from the UK. 5. Conclusion: Simplifying Hawala and Its Challenges Unlike other informal money transfer systems like the Chinese underground banking system hawala is often used for honest reasons. It acts as a financial lifeline for many people offering fast easy and affordable ways to send money. However these same features also attract criminals putting the same communities at risk. While governments try to control it hawala mostly works outside official banking systems making it hard to regulate. Its global nature means law enforcement agencies need to work closely together to address these challenges according to Grey Dynamics. Hawala is unlikely to disappear anytime soon. Its deep roots in history cultural importance and practical advantages make it a useful choice for many people. While efforts to stop its misuse are important for fighting money laundering and terrorism these measures will only work if communities that rely on hawala are offered other options. Finding the right balance will continue to be a challenge. (The author of this article is an award-winning Science Writer and a Defence Aerospace & Political Analyst based in Bengaluru. He is also Director of ADD Engineering Components India Pvt. Ltd a subsidiary of ADD Engineering GmbH Germany. You can reach him at: girishlinganna@gmail.com)