Last week in Mithadar traders beat up three men of the Special Investigating Unit (SIU) who allegedly attempted to extort money. By the time Aram Bagh Police appeared on the scene ASI Javed and PC Zaidi managed to escape. The third man, PC Muzaffar Ali was arrested. However, a senior SIU official denied the allegation and claimed the team was sent to detain a suspected Hawala dealer.
Criminal activities of men in uniform is not news, but this affair revealed a surprising piece of information that the money transfer system called Hawala or Hundi still exists. Furthermore, it seems Hawala is gaining in popularity once again. This is evident from the creation of a special financial crime unit of the Federal Investigation Agency (FIA) to bust illegal money transfer racket. The special unit was created just two or three weeks ago.
The question is, should we view Hawala as a criminal racket? Hawala is often described as the poor man's international bank. A blue collar worker abroad sent his dirhams and dollars to his family in Pakistan through Hawala. He gave one percent of the amount transferred to the Hawaladar and within 24 hours the money was delivered to his family. Blue collar workers made the most use of this easy method of transferring funds but money, especially in the middle-class, also frequently used it.
No one thought of it as a racket until the events of 9/11 when anything Muslim became suspect in the eyes of President George Bush. Hawala is an ancient Muslim financial system based solely on trust. The Hawala system was now seen as the way al Qaeda transferred money to the fanatics who destroyed lives and the Twin Towers in New York. The system was virtually seen to be a financial crime and discouraged.
The first most seriously affected were the Pakistanis working in the USA. They were forced to use official banking channels for money transfer. This meant, for example, a Pakistani New York City taxi driver who used to send money home through Hawala at one percent of the amount transferred now had to use the services of say, Western Union or some other American Bank which charged 15 percent for the transfer. It was an outrageously high commission and extremely slow process compared to Hawala.
Hawaladars in America were told to get themselves registered if they wanted to continue business, but the process of licensing was so slow and prohibitively expensive that many had to close down their business. This itself fed the paranoia of the US government, confirming their view that the terrorists were receiving money through Hawala. It was claimed millions of dollars were being received by terrorists in America through the Hawala system.
In those early years after 9/11 it was impossible to make the Bush government think rationally. Tom Naylor did attempt it. A McGill University expert on economic crime he said Hawala dealers connot handle "dirty money" on a huge scale. Pakistan, as if it was guilty of 9/11, promptly slapped a ban on Hawala and declared the system a financial crime.
In the eyes of most Pakistanis, including scholars like Haider A.H. Mullick, the Hawala was preferred to the bank channels for money transfer and, until the turn of the century five billion dollars entered Pakistan every year, while only I.2 billion dollars arrived through the banking system. According to Mullick the ban on Hawala was inevitable because of Shaukat Aziz.
In the beginning of 2001 Finance Minister Shaukat Aziz complained that the public was not using official banking channel to transfer funds to Pakistan. He wanted to end the Hawala system and enforce the use of the banking system. That happened after 9/11. The banks gained but the poor man lost because of the high commission rate charged by banks for money transfer.
The Hawala system's only "crime" is its Muslim origin. But it is not used only by Muslims. It was (probably still is) the favoured money transfer system throughout Asia and Africa. There is, however, one aspect of the Hawala system that was bad. This was the fact that Hawaladars did not pay taxes. So those who are allegedly still operating secretly can be nabbed for non-payment of taxes.
But to declare the whole system to be a criminal activity is downright unfair to the operators as well as to the poor people who use it. Hawala means trust in Arabic. The poor in our country trust the Hawaladars; they do not have the same faith in banks and bankers. In fact, if a survey is carried out it will be found that most people in the working class do not have a bank account. Banks have done nothing to woo the commonman. Opening an account is a hassle involving much paperwork and documentation. This in itself scares away the poor illiterate person in the working class. It is imperative either Hawala is formally adopted as a legal system or banking is made suitable to the needs of the commonman. Surely banks do not need to charge such a hefty commission on money transfer. But the bottom line in any policy decision is? Who benefits? Neither the government or any other agency is interested in making the life of ordinary folk happy. And we call Pakistan a democracy. Ha, ha.