Money without borders

Saloon Inside the secret world of hawala.

Inside the secret world of hawala Dressed in a powder-blue shalwar kameez, the prodigiously bearded young man looked at me coldly and addressed his companions with a sidelong glance. "Don't tell him anything," he said in Urdu. We were regarding each other across a white countertop in a brightly-lit textile shop one recent evening in downtown Abu Dhabi, surrounded by bolts of cloth (subdued fabrics for men behind the counter, bright patterns for women along the side wall). I was there because I had heard that this particular store ran a robust sideline in cross-border money transfers. But when I asked the young man about hawala, his reception turned cold.

Hawala is an informal mechanism for sending money internationally. Its roots are pre-modern, and its forms are numerous; what defines it is that it runs according to the honour system rather than the legal system. But because hawala transactions are unregulated and untraceable, they have come under intense scrutiny in the age of terror financing and sleeper cells. (Hawala networks were initially believed to have laundered much of the money for the attacks of September 11, 2001; but as it happened, the attackers channelled many funds through SunTrust, an Orlando, Florida-based bank where I used to deposit my own salary.)

The unfortunate part of the stigma attached to hawala is that it offers a highly efficient, sometimes indispensable system for migrant workers to send money home. When the US government shut down a major Somali-American hawala company called Al Barakat shortly after the 2001 attacks, the results were dreadful; because Somalia lacks a formal banking system, hawala had been the only way for thousand of migrants to send money home from America. When Al Barakat went down, with it went much of Somalia's financial lifeline from the United States.

Other efforts to curb informal money transfers have taken the more benign form of stepped-up competition from official currency exchanges, which benefits customers but makes life harder for hawaladars (as hawala brokers are known). To drive the underground brokers out of business, Pakistan's central bank has recently instituted incentives - such as waiving all transaction fees on smaller remittances - to encourage migrants to send money through regulated channels.

Given all that, it was not surprising that the young man in the textile shop gave me the cold shoulder. But for some reason, the shop's manager - a somewhat older man with a neatly trimmed moustache and red henna highlights in his hair, whom I'll call Ibrahim - decided to ignore his colleague's advice. On agreement that I would not reveal his name or the name of the shop, he explained how the business works.

Ibrahim comes from a certain remote district in the Federally Administered Tribal Areas of Pakistan, about 250 kilometres into the mountains from Peshawar. Spread out on work sites across the Emirates, he estimated, there are about 3 or 4,000 migrants from this same tribal district. Ibrahim referred to them as his "relatives". For those "relatives", Ibrahim performs an indispensable service: back at home, he explained, there are no banks or Western Union counters. Nor, for that matter, are there cars, electrical lines, or proper roads. "This place is like a hundred years back," Ibrahim said. And a hundred years back, hawala was simply how money moved.

If one of Ibrahim's countrymen wants to send cash home, he just calls the shop and stipulates an amount. Ibrahim then draws that sum from the cash reserves on hand from the shop's textile business. At the end of the week, he consolidates all the transfers bound for Pakistan and wires them to his brother in Peshawar through a regular exchange house. Money in hand, his brother then drives the long, tortuous journey through the mountains to the tribal headquarters, where he dispenses the cash.

A "relative" might call Ibrahim from anywhere in the UAE - from Liwa, Madinat Zayed or the Saudi border post at Sila - to request a money transfer. And days or even weeks might go by before the worker appears at the shop to settle his debt to the hawaladar. But it is rare for someone to renege on their obligation, he says. "If they cheat, next time who will send their money?" he asks. "Who will trust them?"

Ibrahim is trusting, but he is also discriminating: If a worker from a different tribal district walks into the shop asking to send money home, Ibrahim will direct the worker to some other textile emporium or mobile phone store in the neighbourhood - one that specialises in transferring money to that migrant's place of origin. Contrast all that to a more typical remittance transaction in the UAE: a worker walks up to a counter at an exchange house and hands some cash through a hole in the Plexiglas. A stranger receives it, dressed in a professional-looking uniform that recalls something between a bank teller and an airline employee. The interior of the exchange is bright and modern, and security cameras watch the entire transaction.

As part of the deal, the worker feeds information through the window along with his wages: his name, country of origin, passport number and the names and bank-account numbers of his beneficiaries, all of which go into a standing computer file about him. In return, he is handed a typewritten receipt. That night, while he sleeps, his remittance will bounce electronically from the UAE to a holding account in New York and then - following a few early morning phone calls between banks to agree on an exchange rate - to its final destination.

At such a traditional exchange house, faith in the transaction is faith in a set of impersonal, bureaucratic controls against error and graft. With the hawaladar, faith in the transaction is faith that strong social ties will not be broken lightly. As I spoke with Ibrahim that evening, the shop seemed to do scarcely any business. I took it for a slow night - until I noticed that one of the his co-workers was seeing a moderate stream of customers outside in the night air, away from my outsider's gaze. And it wasn't textiles that were changing hands.

* John Gravois