Editing Hawala (section)

== Procedure ==
In the most basic variant of the hawala system, money is transferred via a network of hawala brokers, or ''hawaladars'', without actually moving money. According to the author [[Sam Vaknin]], there are large hawaladar operators with networks of middlemen in cities across many countries, but most hawaladars are small businesses who work at hawala as a sideline or [[Side job|moonlighting]] operation.<ref name="Vaknin" />

In general, the process of hawala operates as follows:

# Sending money: The sender provides a sum of money to a hawala agent known as the sending broker. This money is intended for the recipient in another city, often in a foreign country.
# Providing instructions: Along with the money, the sender provides a code or password (token) to the sending broker. This token serves as a key for the recipient to receive the money.
# Communicating the token: The sender informs the recipient of the token, either directly or through a different channel like a phone call or more recently, electronic messaging.
# Initiating transfer: The sending broker contacts another hawala agent, the receiving broker, located in the recipient's area. They inform the receiving broker about the money to be transferred and provide the token necessary for the recipient to collect the funds.
# Receiving money: The recipient approaches the Receiving broker, who disburses the transferred sum to them, usually after deducting a small commission.
# Trust mechanism: Hawala relies on a system of trust between brokers. The sending broker owes the receiving broker the amount disbursed to the recipient. This trust is established over time and through established relationships within the hawala network. Despite the absence of formal documentation, hawala transactions heavily depend on the reputation and reliability of the brokers involved.
# Maintaining integrity: The hawala network ensures integrity and trust by carefully vetting new brokers and maintaining strict adherence to established protocols and codes of conduct. Reputation within the network is paramount, and any breach of trust can result in severe consequences, including ostracism from the network.

The unique feature of the system is that no [[promissory note|promissory instruments]] are exchanged between the hawala brokers; the transaction takes place entirely on the [[honour system]]. As the system does not depend on the legal enforceability of claims, it can operate even in the absence of a legal and juridical environment. Trust and extensive use of connections are the components that distinguish it from other remittance systems. Hawaladar networks are often based on membership in the same family, village, clan or ethnic group, and cheating is punished by effective excommunication and the loss of honour, which lead to severe economic hardship.<ref name="Vaknin" />

Informal records are produced of individual transactions, and a running tally of the amount owed by one broker to another is kept. Settlements of debts between hawala brokers can take a variety of forms (such as goods, services, properties, transfers of employees, etc.), and need not take the form of direct cash transactions.

In addition to commissions, hawala brokers often earn their profits through bypassing official [[exchange rate]]s. Generally, the funds enter the system in the source country's currency and leave the system in the recipient country's currency. As settlements often take place without any foreign exchange transactions, they can be made at other than official exchange rates.

Hawala is attractive to customers because it provides a fast and convenient transfer of funds, usually with a far lower commission than that charged by banks. Its advantages are most pronounced when the receiving country applies unprofitable exchange rate regulations or when the banking system in the receiving country is less complex (e.g., due to differences in the legal environment in places such as Afghanistan, Yemen, and Somalia). Moreover, in some parts of the world, it is the only option for legitimate fund transfers. It has been used even by aid organizations in areas in which it is the best-functioning institution.<ref name="Passas, Nikos 2006 pp. 46–62">{{Cite journal |last=Passas |first=Nikos |year=2006|title=Demystifying Hawala: A Look into its Social Organization and Mechanics|journal=Journal of Scandinavian Studies in Criminology and Crime Prevention |volume=7 |issue=suppl 1 |pages=46–62 |doi=10.1080/14043850601029083|s2cid=145753289 }}</ref>