Hawalaas credit: recognizing howhawalasupports the business climate in Afghanistan

Abstract

Purpose The purpose of this study is to explore the role of hawala in supporting Afghanistan’s business climate. It illustrates the use of hawala as credit and its importance for the local merchant community. Design/methodology/approach The empirical data presented in this article draws from more than 83 semi-structured interviews with Afghan merchants, business leaders, hawaladars and judicial officials, conducted between March and August 2017 in five major provinces of Afghanistan, namely, Kabul, Herat, Balkh, Nangarhar and Kandahar. These five provinces collectively represent half of Afghanistan’s economy, one-third of Afghanistan’s total population and more than four-fifth of Afghanistan’s urban population. The commercial courts that sit in these five provinces hear more than 90% of total commercial disputes in the country. Findings In Afghanistan, despite their reputation for being the bankers of terrorists and criminals, hawaladars primarily serve Afghan merchants – the overwhelming majority of their customers – helping them cope with an uncertain business climate. Within supply chains, Afghan importers rely on credit-hawala to protect themselves from the interruptions of cash flow that are prevalent throughout the Afghan economy. Practical implications Drawing on extensive field research, this article highlights how hawala stabilizes financing and markets in Afghanistan, arguing that while hawala regulations are necessary to counter abuse of hawala, regulators must be cognizant of how hawala is used in financing of legitimate businesses, or they will exacerbate the problems of access to credit. Originality/value While the historical studies of hawala reveal its inextricable link with trade financing, the current hawala literature completely neglects hawala systems’ contemporary financing role. Instead, the literature is completely dominated by the globalization trend of terrorism, money laundering and worker migration. Neglecting the trade financing role of hawala causes policymakers not to appreciate the impacts of hawala regulations on the trade fully. Overlooking hawalas’ role in financing transnational trade also results in the exclusion of an important group of stakeholders – namely, merchant-users of hawala services who are the main beneficiaries of hawaladars’ financing services – from the process of regulation of hawala systems. The main reason that hawala regulations have failed to gain tractions in countries such as Afghanistan is that these regulations have not been cognizant of the multifaceted functions of hawala markets and do not include all stakeholders in the regulation process.

Alternate remittance systems in Ghana: a trade enabler or an organised fraud

“…Specific issues emerging from the findings indicate that ARS contributes to the growth of local businesses, especially start-ups and young businesses. This is consistent with past studies that confirm the relative importance of the system to individuals and businesses (Faith, 2011; Hariharan, 2012; Rahimi, 2020). Some businesses using the system in Ghana are able to acquire unsecured loans at little or no interest cost.…”

“…Few academic peer review articles have also been conducted on ARS, albeit scanty (Anwar Daudi, 2005; Gräbner et al , 2020; Hariharan, 2012; Rahimi, 2020; Van De Bunt, 2008). Van De Bunt (2008) analysed ARS from the perspective of the operators and provided a description of how the system works with emphasises the need for trust between client and operators, as well as between operators themselves.…”

“…From another perspective, Rahimi (2020) explained how the system supports business operations in Afghanistan amid the reputation of terrorism among operators of the system. The paper highlighted several ways the system helps merchants in such an unstable environment with the safekeeping of their deposits and helps with the domestic and international transfer of funds to business partners.…”

Combating terrorist financing in Switzerland in the light of current changes in Afghanistan

“…In Afghanistan, more money circulates through the hawala system than through the formal banking system (Rahimi, 2020). Although for 20 years Afghanistan has received international technical assistance to strengthen its banking sector, hawala remains the main system used to send money into the country and to import goods from neighbouring countries such as Pakistan and Iran (Just Security, 2021).…”

Evolution of trust in hawala networks – business relationships analysis from inception to maturity

“…Especially, in Muslim countries with weak national economies (such as Somalia and Afghanistan), majority of public has more trust in hawala banking when compared to conventional banks (Ismail, 2007). This trust in hawala banking is largely related to bureaucratic conventional banking system, poor credit rating of the customer and discriminatory access to the conventional banking facilities especially for a low-income person living in rural area (Rahimi, 2020). Embeddedness in local communities, supported by social ties, puts hawala banking in a favorable position when it comes to providing trust-based services.…”