Editing Informal value transfer system

{{Financial market participants}}

An '''informal value transfer system''' ('''IVTS''') is any system, mechanism, or network of people that receives [[money]] for the purpose of making the funds or an equivalent value payable to a third party in another geographic location, whether or not in the same form. Informal value transfers generally take place outside of the conventional [[banking system]] through [[non-bank financial institutions]] or other [[business]] entities whose primary business activity may not be the transmission of money. The IVTS transactions occasionally interconnect with formal banking systems, such as through the use of [[bank account]]s held by the IVTS operator.

==History==

An informal value transfer system is an alternative and unofficial remittance and banking system, that pre-dates current day modern banking systems. The systems were established as a means of [[Settlement (finance)|settling accounts]] within villages and between villages. It existed as far back as over 4000 years ago and even more.<ref>{{cite web |title=Ancient Languages: Sumerian Cuneiform Tablet |url=http://crockerartmuseum.org/about/resources/striking-gold/item/ancient-languages-sumerian-cuneiform-tablet |website=[[Crocker Art Museum]] |accessdate=19 November 2020 |archiveurl=https://web.archive.org/web/20140106044445/https://crockerartmuseum.org/about/resources/striking-gold/item/ancient-languages-sumerian-cuneiform-tablet |archivedate=6 January 2014 |quote=Click on 'context' tab to view relevant details |url-status=dead}}</ref><ref>{{cite web |title=Cuneiform tablet: account of barley and date disbursements, Ebabbar archive |url=https://www.metmuseum.org/art/collection/search/325270 |website=[[Metropolitan Museum of Art]] |accessdate=19 November 2020}}</ref>

Their use as global networks for financial transactions spread as expatriates from the original countries settled abroad. Today, IVTS operations are found in most countries. Depending on the ethnic group, IVTS are called by a variety of names including, for example, ''[[hawala]]'' (Middle East, Afghanistan, Indian Sub-Continent); ''[[Flying cash|fei ch’ien]]'' (飞钱 or "flying money"; China); ''phoe kuan'' (Thailand);<ref>{{cite web |last1=Sandhu |first1=Harjit |title=Terrorism-Criminal Nexus Non-banking Conduits |url=https://www.osce.org/files/f/documents/0/8/27981.pdf#page=7 |website=[[Organization for Security and Co-operation in Europe|OSCE]] |accessdate=19 November 2020 |date=11 March 2004}}</ref> and ''Black Market Peso Exchange'' (South America).<ref>{{cite web |last1=Zill |first1=Oriana |last2=Bergman |first2=Lowell |authorlink2=Lowell Bergman |title=Frontline Special Report: drug wars {{mdash}} the Black Peso Money Laundering System |url=https://www.pbs.org/wgbh/pages/frontline/shows/drugs/special/blackpeso.html |website=[[Frontline (American TV program)|Frontline]] |publisher=[[PBS]] |accessdate=19 November 2020}}</ref>

Individuals or groups engaged in operating IVTS may do so on a full-time, part-time, or ad hoc basis. They may work independently, or as part of a multi-person network. IVTS are based on [[Trust (sociology)|trust]]. In general, operators usually don't misappropriate the funds entrusted to them.<ref>{{cite web |title=Next Door Neighbors: Somali {{mdash}} Money Transfer |url=https://ndn.wnpt.org/documentaries/somali/money-transfer/ |website=[[WNPT (TV)|Nashville Public Television]] |accessdate=19 November 2020 |archive-date=23 January 2015 |archive-url=https://web.archive.org/web/20150123213757/https://ndn.wnpt.org/documentaries/somali/money-transfer/ |url-status=dead }}<!-- url updated from https://web.archive.org/web/20140106034358/http://www.wnpt.org/productions/nextdoorneighbors/somali/money.html --></ref><ref>{{cite web |last1=Hersman |first1=Erik |authorlink1=Erik Hersman |title=Hawala Tech and Banks in Somalia |url=http://whiteafrican.com/2010/10/03/hawala-tech-and-banks-in-somalia/ |website=WhiteAfrican |accessdate=19 November 2020 |date=3 October 2010}}</ref>

==Mechanism==
The sender gives money to an IVTS agent and their counterpart in the receiver region/country acts as deliverer of this money.  The sender calls or faxes instructions to his counterpart and the money gets delivered in a matter of a few hours. In the past, the message could be delivered using couriers, with men or even animals (such as pigeons). Settlements are made either with a private delivery service or [[wire transfer]] in the opposite direction.  Another method of balancing the books is to under-invoice goods shipped abroad, so that the receiver can resell the products at a higher market price.<ref>{{cite journal |last1=Kapur |first1=Devesh |last2=McHale |first2=John |authorlink1=Devesh Kapur |title=Migration's New Payoff |journal=[[Foreign Policy (magazine)|Foreign Policy]] |issue=November-December 2003 |pages=49–57 |url=https://foreignpolicy.com/2009/11/02/migrations-new-payoff/ |archive-url=https://web.archive.org/web/20150113051312/https://foreignpolicy.com/2009/11/02/migrations-new-payoff/ |archive-date=13 January 2015 |access-date=20 November 2022 |url-access=subscription |issn=0015-7228}}</ref>

==Adoption==
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IVTS are used by a variety of individuals, businesses, organisations, and even governments to remit funds domestically and abroad. Expatriates and immigrants often use IVTS to send money back to their families and friends in their home countries (for workers who worked abroad) or foreign countries (for merchants who need extra money to start a business). IVTS operations are also used by legitimate companies, traders, organisations, and government agencies needing to conduct business in countries with basic or no formal financial systems.

In some countries, IVTS-type networks operate in parallel with formal financial institutions or as a substitute or alternative for them or. Besides citizens of the host country, people (legally or illegally) residing in the host country from foreign countries may prefer or need to use IVTS in lieu of formal financial institutions for various reasons as described below:
* the host country and the receiving country have no diplomatic ties or the host country actively discourage the sending of money to the receiving country.
* the constant change in the world political environments, unsatisfiable payment systems, and/or a rapid continuously changing financial sector;
* a lack of easily accessible formal financial institutions in remote areas of some countries;
* transfers that are more efficient, reliable, and cheaper than formal financial institutions. (For example, a [[electronic funds transfer|wire transfer of funds]] using banks involves fees charged to the sender and receiver, may take from two to seven days to complete, and may be delayed or lost. Funds moved through IVTS are usually available within 24 hours, with minimal or no fees charged to the participants);
* to avoid paying higher foreign [[exchange rate]]s. (Funds sent through traditional transfers are converted to the currency of the recipient’s country; the fee charged for exchange rate conversion is set by the institution. IVTS operators, who speculate in currency exchange rates, charge lower fees);
* to avoid paying transfer taxes;
* to ensure anonymity since there may be minimal or no records maintained; or
* to avoid mandatory reporting of large transactions from financial institutions to governments.

Because IVTS provides security, anonymity, and versatility to the user, the systems can be also used for supplying resources for doing illegal activities.  Following the [[September 11, 2001 attacks]] on the United States, IVTS have come under increased scrutiny and regulation in many countries as a result of pressure from the United States.

==See also==
{{Portal|Economics}}
* [[Correspondent account]]
* [[Financial Action Task Force on Money Laundering|FATF]] 
* [[FATF blacklist]]
* [[Hawala]]
* [[Hundi]]
* [[Remittance]]
* [[Value transfer system]]

==References==
{{reflist}}

==Further reading==
* {{cite web |last1=Rao |first1=R. Kavita |last2=Tandon |first2=Suranjali |title=Designing Policies in the Presence of Hawala Markets |url=http://www.nipfp.org.in/media/medialibrary/2015/01/WP_2015_142.pdf |website=[[National Institute of Public Finance and Policy|National Institute of Public Finance and Policy (India)]] |access-date=23 November 2020 |date=January 2015}}
* {{cite web |last1=Ballard |first1=Roger |title=A Background Report on the Operation of Informal Value Transfer Systems (Hawala) |url=http://casas.org.uk/papers/pdfpapers/hawala.pdf |website=Centre for Applied South Asian Studies |access-date=23 November 2020 |archive-url=https://web.archive.org/web/20111005231719/http://casas.org.uk/papers/pdfpapers/hawala.pdf |archive-date=5 October 2011 |date=6 April 2003 |url-status=usurped}}
* {{cite web |last1=El Qorchi |first1=Mohammed |last2=Maimbo |first2=Samuel Munzele |last3=Wilson |first3=John F. |title=Informal Funds Transfer Systems: An Analysis of the Informal Hawala System |url=https://www.elibrary.imf.org/doc/IMF084/03590-9781589062269/03590-9781589062269/Other_formats/Source_PDF/03590-9781452791388.pdf |access-date=23 November 2020 |archive-url=https://web.archive.org/web/20071009132954/http://www.johnfwilson.net/resources/Hawala+Occasional+Paper+_3.24.03_.pdf |archive-date=9 October 2007 |date=2003 |url-status=live}}<!-- the archive url links to a "pre-publication" version of the paper dated 24 March 2003 -->{{cbignore}}

==External links==
* [https://web.archive.org/web/20081121142607/http://www.fincen.gov/advis33.pdf U.S. Dept. of the Treasury March 2003 Advisory (#33) to financial institutions re IVTS.] ''Almost all of this article comes from this document.''
* ''Hawala. An Informal Payment System and Its Use to Finance Terrorism'', by Sebastian R. Müller (Broschiert – December 2006), {{ISBN|3-86550-656-9}}, {{ISBN|978-3-86550-656-6}}

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[[Category:Informal value transfer systems| ]]
[[Category:Financial routing standards]]