October 09, 2007
Melting Gold and Other Financial Transactions
Having had enough of my ridiculously over-regulated stiflingly bureaucratic and extortionately expensive UK bank account, I decided to take the advice of a relative and use a highly suspect and loosely regulated local ‘hawaala’ system in order to send my monies abroad. Somewhat embarrassingly, I had never visited a hawaala branch despite at some point completing a post graduate thesis on informal money transfer systems. And here, when I say ‘branch’, I actually mean some incarnation of tertiary industry on a street corner where you can procure slightly suspect fruit and veg, go online for a pound and grab some milk at an ungodly hour when all the decent market chains had shut down.
My interest in (mostly Somali run) informal money transfer systems in the West had thus far only extended in so far as to examine them with an academic eye as an interesting manifestation of expatriate dynamics. As most immigrants frequently send money back to their countries of origin, the hawaala system developed out of a need to do so cheaply (banks usually charge heavily on IMTs and do not have favourable exchange rates if the monies are to be deposited in a different currency at the receiving end) and with anonymity. In order to open a bank account in the first place, one must have identity documents proving legitimacy of residence, employment, address etc and needless to say, if one is an illegal immigrant, or just an immigrant who is in legal employment but who has not taken possession of all the necessary documentation, the hawaala system presented a viable alternative to the formal bank network.
Not falling into any of the above categories myself I had never considered using the hawaala system personally but having opted for an ‘Islam friendly’ non-interest based premier account at my ‘local bank', I found the charges for transferring money to several causes bank home in the Arab World obscene. In addition, the system was slow, snagged at the first whiff of suspicion, charged me an arm and a leg for the privilege of NOT paying me interest and asked me a million moronic questions every time I wanted to make a transaction. Nonetheless, I was happy to plod along as I did not believe there was any alternative. However, when my baby sister made it into medical school last week, I was determined that she should have her gift as soon as possible, and as the gift was rather expensive (and as I do tend to blot out my transgressions on the more innocent of my family with the rich flannel of financial bribery), I ventured into the world of hawaala, tempted by the fact that they promised next day delivery.
A surprisingly slick website provided me with a list of the agents in my neighbourhood in addition to their contact details. I called one of the numbers, still highly sceptical and was advised by a gruff disinterested tone, to bring the money in cash (even though the website claimed to perform debit card transfers) in addition to some sort of ID. They were open from 10 am I was told, and I awoke early the next day (already annoyed as it was a weekend and I was fasting so could not shorten the day by trying to sleep it away) armed with a Streetmap printout of the post code location of the shop and clutching my hard earned wads of cash, made my way to a slightly dodgy part of town. After walking for ages I came to a corner shop which was heavily bolted and could not identify it as being that belonging to the hawaala agent if it were not for a faded sign on the storefront bearing the legend ‘Dahab Shiil’ (Somali for ‘Melting Gold’). It was cold, I was hungry and miles from home and I was not happy that the shop was still shut at 11am when I was guaranteed it would open at 10.
After pacing around in the cold for some time I decided to abandon the whole endeavour, one which I had embarked on without much faith or enthusiasm in the first place. As I walked away a small pious looking man began unbolting the shop door and I stopped and made sure the shop was actually open before walking in. He seemed surprised to see anyone in there so early on a weekend and I, not very politely, asked him if it wasn’t early enough for a transfer. He very politely obliged and switched on his ancient pc. As it booted I looked around the tiny shop, a few dilapidated pcs, a printer and some mobile phones in a filthy glass cabinet were all that adorned the tiny interior and I became more nervous about handing over my cash. He asked me how much I wanted to send and when I told him the figure he emitted a low whistle looking slightly taken aback. ‘Problem?’ I said, ready to get the hell out of there. ‘Maybe’, he replied, ‘It’s a lot of money.’ He signed in to some intranet system on his pc and entered the amount to see ‘if it would let him’ (!). Finally, he turned around with a smile and asked me for my details and the details of the recipient which I gave, still trying to think of an excuse to leave.
As he entered the details I noticed a Financial Services Authority anti-money laundering certification on the wall in addition to a registration number for the ‘branch’. He took a photocopy of my passport and I handed him the cash, still not hugely confident. As he pressed the button to transfer the cash he said ‘You will be saving a lot of money, your total amount came to just under 5000 dollars and we have a discount for Ramadan, so you will end up paying only 1% in fees’. Bargain, I thought, especially compared to that glitzy, polished, eco-friendly progressive, suited and booted daylight robber of a bank. The amusing thing is that he seemed genuinely happy for me as he beamed and handed me over the receipt.
‘They shall have it first thing tomorrow morning’ he said. They had better, I thought, if they never do, what recourse would I have? I would be laughed out of any tribunal for going to a place that resembled the inside of a defunct fridge to transfer thousands of dollars.
The next morning fast asleep and determined to sleep at least one fasting day away, I was woken up by my little sister on the phone squealing in excitement after the receipt of her surprise present. I was more than a little relieved. Ok I know, it was hardly a deal with some underworld mafia that came off without a hitch, but it certainly opened my eyes to the upsides of the more basic financial service. Of course I will not be transferring any mortgage payments regularly through Dahab Shiil, but for one off payments (especially during Ramadan); it is a risk I am now more ready to take.
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Posted by: The Lounsbury at October 9, 2007 12:07 PM
Still high risk, and a god send to those who need to send money to destinations without dependable banking systems, hence the US crackdown on alleged untraceable 'terrorist funding mechanisms' post 9/11.
Posted by: Meph at October 9, 2007 12:21 PM
Yes, aware of the cretinous US crack down. The bloody idiots in the Embassies, whenever they show up at some finance and banking event are always going on and on about Hawala.
Cretins. Easier to launder via commercial transactions.
Posted by: The Lounsbury at October 9, 2007 12:59 PM
What safeguards are there for them happily taking your money, keeping it, and then claiming they've never seen you before? I assume they do receipts?
Posted by: Djuha at October 9, 2007 09:14 PM
I wonder if PayPal is the Western hawala ...
As for "safeguards" - the hawala branch's need to maintain reputation is the main one. If they had tried to cheat Meph, all she had to do is to spread the word - at mosques, for example - that they are cheaters & a lot of people would've shunned that branch.
Posted by: MSK at October 10, 2007 03:08 AM
They do receipts but I am not sure as to their standing in court. I do agree with MSK that loss of reputation is a much more potent threat to these branches.
Posted by: Meph at October 10, 2007 05:02 AM
Dahabshiil is kind of the hawala that came in from the cold. Not wanting to end up like Barakat -- the big hawala bank/network that got shut down back in 2002 -- Dahabshiil decided to go upmarket and legit. They registered with the U.S. Treasury and everything. They're now quite similar to Western Union, though a whole lot cheaper, apparently.
The traditional hawala experience doesn't involve computers and kiosks in shopping malls. It involves back rooms and massive bundles of currency that are often weighed rather than counted. If you're really lucky, you might even see an abacus!
The coolest thing about traditional hawala is the delivery. It's kind of thrilling to have your doorbell ring one evening in the middle of the night and have a total stranger drop off a big wad of cash. This was regular occurence for several people I knew at University and I still find it completely surrealistic.
Anyway, Meph, if you want to transfer large amounts at a reasonable price using the traditional banking system, let me suggest XE.COM. For decent-sized transactions, they're similar to what you paid at Dahabshiil. More imporantly, at least to me, their pricing is transparent in that they don't charge any fees at all except a nominal (and flat) wire fee. Rather, they charge you a spread on the exchange rate. I find it really annoying when retail banks try to charge you an X% service fee AND ream you on the exchange rate, too -- without telling you, of course. Forex is the largest and most efficient market on the planet by orders of magnitude. It's obscene that retail banks try to charge you 500 or 600 basis points round trip.
Posted by: Anonymous at October 10, 2007 08:27 PM
Hmm, xe looks interesting but not sure how they are with far flung locations, will research further but thanks for the tip
Posted by: Meph at October 11, 2007 09:24 AM
XE.COM requires that the recipient have a proper bank account. But you can wire funds anywhere in the world you like.
Things like Dahabshiil and Western Union, which is even better for "far flung" locations than Dahabshiil, are great for getting funds to people outside the formal banking network. I don't mean that in the sense that these folks are trying to hide from the formal banking network but in the sense that the Barclays in your cousin's village in Upper Middleofnowherestan may not have convenient hours.
The traditional hawala system is/was often used both by people without access to formal banking and by very well-off people who needed to avoid foreign exchange controls. It was in this latter sense that my University friends were using it.
Now that I think about it, you wrote a bloody graduate thesis about all this, didn't you? Well, if you'll excuse me, I'll cut this short as I've got to finish a post explaining the nuances of the North African private equity investment environment to Collounsbury.
Posted by: Anonymous at October 11, 2007 06:28 PM
Don't patronise much do you Anon? My only concern with xe (and the advantags of Dahab Shiil eg) is that it does not control or mitigate the behaviour of the bank on the receiving end. The exchange rate is determined by the recepient's bank and in economies where nobody goes anywhere but the black market to exchange hard currency, official rates are exorbitant.
Posted by: Meph at October 12, 2007 06:16 AM
Funny, I read that as North America.... I thought you had observations on my confrontation with Washington Monthly left populists.
Posted by: The Lounsbury at October 12, 2007 08:56 AM
XE requires the recipient to have a bank account in the currency transfered. That is, if you transfer $$$ to, say, Iran or Syria, then the recipient in Tehran or Damascus needs to have a $$$ bank account. In many of our region's countries, that's often next to impossible to get, thus - sadly - ruling out the usage of XE.
Also, if you read XE's fine print carefully, it can take quite a bit for the funds to reach the recipient, as many banks in our region would require the funds to be wired, which can sometimes take over a week.
With hawala, you give them cash & the recipient gets cash within a few days (often overnight). It's the quickest, most direct way & thus will continue to endure.
Posted by: MSK at October 12, 2007 09:17 AM
Don't patronise much do you Anon?
No, I don't. In fact, I was making a bit of fun of myself as I realized, after re-reading it, that everything in my post would have been bang obvious to you. I decided to post it anyway as I thought maybe some readers wouldn't be as familiar with hawala as you are. Perhaps my self-deprecation at the end was a bit too subtle.
Posted by: Anonymous at October 12, 2007 01:46 PM
Perhaps my tongue in cheekiness was even subtler!
Posted by: Meph at October 15, 2007 10:03 AM
So ... now that we have clarified that XE.com is relatively useless for transfers into most of the MidEast ... all that's left to say is:
Get a room, you two.
Posted by: MSK at October 15, 2007 10:41 AM