Dirty, silent Hawala money, Web Hundi is spreading again in Pakistan



International business transactions are fairly straightforward. For everything you import or export, payments are made through banking channels.

However, that has changed since the Taliban returned to power in Afghanistan. The US authorities have frozen the foreign accounts of the Afghan government and the Afghan banking network is not functioning properly. So if the banking channels are not working, how does the country make payments for the basic necessities that it imports. How does he receive money for the products he exports?

The answer is: the Hawala and Hundi networks.

A Peshawar businessman involved in Pakistan-Afghan commerce explained that although the Afghan government is taking action to show legal requirements are met, the reality is that companies are using informal banking channels or Hawala and Hundi to trading.

Hawala / Hundi dealers are exploiting the conditions and have increased the scale of their operations to further anchor their roots in the region.

How does the Hawala network work?

Hawala is an illegal financial system that operates alongside the banking channel. Here’s how it works: Person A needs to receive money from Person B. The two live in different cities and don’t want to use a bank channel for the transaction. In such a scenario, B will tell A to go see C, a Hawala agent who lives in the same town as A and give him his Hawala (which means reference in Urdu). C hands the money to A. B makes the payment to D, which is linked to C. The hawala operators charge a fee for their services.

Afghan trade and Hawala / Hundi

Afghanistan mainly exports fruit and vegetables to Pakistan for which payments are made in cash or hawala.

For exports, Pakistani traders must follow the rules and procedures set by the State Bank of Pakistan and Customs.

The problem is how to get the dollars earned from exports from Afghanistan, since the country’s banking channels are not functioning.

The SBP allows Afghan traders to make advance payments to Pakistani banks and obtain electronic forms. There are two problems with this approach: there is a shortage of dollars in Afghanistan and bringing money from Afghanistan is a huge risk.

Local traders have found a way around this. They buy dollars in the local market in Pakistan and submit them to banks for electronic forms. They receive payment for these shipments through Hawala. It is for Pakistani products such as wheat, cement, etc. which are exported to Afghanistan.

Several goods are first imported into Pakistan and then exported to Afghanistan. For such items, people sitting in Pakistan buy dollars in the local market but receive payments from Dubai through Hawala. Thus, the Hawala networks operate simultaneously in Kabul, Peshawar, Chaman, Karachi and Dubai.

SBP’s efforts to discourage unnecessary dollar purchases and their impact

The State Bank of Pakistan has taken several measures to curb unnecessary dollar trade in the country. The SBP has started biometric verification and asks people to fill out forms explaining why they are buying dollars. Recently, the central bank also set a limit on how many dollars you can buy at a time.

But the new rules have made traders reluctant to buy dollars from legal currency traders, said Shahid Hussain, vice president of the Sarhad Chamber of Commerce and Industries.

This is because not only has a limit been set, but traders must also provide a full record of the transaction. Beside that, the Federal Investigation Agency is also questioning traders, Hussain said.

The current situation is that people who already have electronic forms are using them, he said. If the Pakistani government cannot find a way to trade through the barter system or in Pakistani currencies, trade will be negatively affected, Hussain warned.

Forex Association of Pakistan President Malik Bostan said the SBP’s measures increase black marketing of dollars and push people towards illegal money changers and Hawala / Hundi traders. In Kabul, the dollar is Rs 10 more expensive than the SBP interbank rate, he said. In Chaman and Peshawar, it’s Rs 5 above the interbank rate.

Zafar Paracha, secretary general of the Exchange Companies Association, said the dollar was sold for Rs 185 in Karachi on the black market. In Chaman and Peshawar, the rate is around Rs 191.

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