Trust and Social Control: Sources of Cooperation, Performance, and Stability in Informal Value Transfer Systems

Gräbner, Claudius; Elsner, Wolfram; Lascaux, Alex

doi:10.1007/s10614-020-09994-0

Cited by 4 publications

(10 citation statements)

References 35 publications

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“…(1) the use of hawala by terrorist groups and syndicates of organized crime to finance their illegal activities and/or launder their proceeds (Keene, 2007;Passas, 2003;Thompson, 2006;Schneider, 2010;Financial Action Task Force, 2013); (2) the use of hawala by immigrant workers to remit a portion of their income to their families (Viles, 2008;Ballard, 2005); (3) the informal institutional arrangements that allow the hawala system to function without formal legal protection (e.g. the role of trust) (Ismail, 2007;Schaeffer, 2008;Gräbner et al, 2017;van de Bunt, 2008); and (4) the appropriate regulatory response to the ills of hawala (Maimbo, 2004;Passas, 2003;Daudi, 2005;Siddiqui, 2014).…”

mentioning

confidence: 99%

Hawalaas credit: recognizing howhawalasupports the business climate in Afghanistan

Rahimi

2020

JMLC

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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.

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confidence: 99%

Hawalaas credit: recognizing howhawalasupports the business climate in Afghanistan

Rahimi

2020

JMLC

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“…Van De Bunt (2008) explains that operators of ARS have high social ties either through their religious beliefs or often come from the same area and speak the same language. These strong social ties create a sense of bonding between and among the participants, which enhances the loyalty of all parties (Gräbner et al , 2020). Although strong ties are necessary for trust to prevail, in several cases, operators are referred by other parties who usually provide guarantees.…”

Section: Theoretical and Literature Reviewmentioning

confidence: 99%

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

Asmah

Atuilik

2021

JMLC

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Purpose Alternate remittance systems (ARS) are inherently not illegal; however, the nature of their activities has mostly been linked with money laundering and terrorist financing, which raises several questions as to why businesses in Ghana rely on these systems to conduct their cross-border trade. The purpose of this study is seeks to understand the nature of ARS in Ghana and analyse why business owners rely on them for their transactions. Design/methodology/approach Three companies were selected for the case study analysis. This research paper used a qualitative data analysis for the study. Interviews, direct participant observation and documentary review were the main techniques for data collection. The multiple sources of evidence helped to reduce the potential bias of the single method. Findings This paper found that some businesses using the system in Ghana can acquire unsecured loans at little or no interest cost, which provides a good source of funding to support business growth. Unlike other studies, this study proves that in some instances, ARS operators transact business with the clients they do not, particularly trust. Within the context of this study, this paper found evidence that supports money laundering, but the underlining crime is mostly tax evasion. The adoption of the system is an attempt to disguise the proceeds of the tax evasion crime and clean them through business operations. Research limitations/implications This analysis was based on the strain theory from the perspective of the clients. Future studies can focus attention on the ARS operators and understand their perspectives. Several other fraud theories could be used as a lens to understand the phenomena in Ghana and other jurisdictions. Practical implications The study throws more light on a “secret” or an underground banking system that operates in Ghana. It provides insights that can guide regulatory authorities in their policy implementation. The need for stricter enforcement of the law has also been highlighted. Originality/value To the best of the authors’ knowledge, this study is original, as it focuses on a sector that is highly secretive but has significant implications on the Ghanaian economy.

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“…In Gräbner et al (2017b) we used an ABM to answer these questions. We have focused on the interactions among the hawaladars, and did not consider the interactions between hawaladars and their customers.…”

Section: Studying Hawala With a Computational Modelmentioning

confidence: 99%

“…Table 1 summarizes these results. For a discussion of the underlying mechanisms see Gräbner et al (2017b).…”

Section: Trust and Social Control Are Both Not Sufficientmentioning

confidence: 99%

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To Trust or to Control: Informal Value Transfer Systems and Computational Analysis in Institutional Economics

Gräbner

Elsner

Lascaux

2018

Journal of Economic Issues

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This paper illustrates the usefulness of computational methods for the investigation of institutions. As an example, we use a computational agent-based model to study the role of general trust and social control in informal value transfer systems (ITVS). We find that, how and in which timeline general trust and social control interact in order to make ITVS work, become stable and highly effective. The case shows how computational models may help (1) to operationalize institutional theory and to clarify the functioning of institutions, (2) to test the logical consistency of alternative hypotheses about institutions, and (3) to relate institutionalist theory with other paradigms and to practice an interested pluralism.

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Trust and Social Control: Sources of Cooperation, Performance, and Stability in Informal Value Transfer Systems

Cited by 4 publications

References 35 publications

Hawalaas credit: recognizing howhawalasupports the business climate in Afghanistan

Hawalaas credit: recognizing howhawalasupports the business climate in Afghanistan

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

To Trust or to Control: Informal Value Transfer Systems and Computational Analysis in Institutional Economics

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