DAMMAM, 4 December 2003 — The authorities in the Eastern Province have cracked down on “hawala” or illegal remittance operators and made several arrests.
Saudi Arabia this year announced several new banking rules in its fight against money laundering. The Saudi Arabian Monetary Agency (SAMA) warned against any money transfer through unauthorized financial institutions or individuals. Only Saudi banks and authorized money exchanges could transfer money abroad.
The Kingdom’s seven million expatriates remit an estimated SR21 billion every year. Many money exchanges in the Kingdom have thrived on these transfers, and competition among them is stiff.
But despite attractive offers from licensed operators, “hawala” money transfer has been thriving in the entire Gulf. This is not because customers have anything to hide but because it is convenient.
Until a few years back, the “hawala” method was attractive because operators offered a more favorable exchange rate than banks for several Asian currencies. On large transfers, customers were making significant savings.
In the past three years, “hawala” operations in the Kingdom have considerably declined — partly because economic reforms made a number of Asian currencies easily convertible — but they have neither disappeared nor vanished.
The main reason the “hawala” system survives in the Gulf is the inaccessibility of banks and money exchanges in remote parts of India, Pakistan and Bangladesh. Most of the three million expatriates from those countries work in blue-collar jobs and hail from remote villages.
They say that if they transfer money to their homes through banks and money exchanges, it takes at least a month to reach their families. Muhammad Hameed, a resident of a village in Uttar Pradesh, India’s largest state, says the nearest corresponding bank is 150 km away from his village. “My people have to travel all the way there to deposit the draft and it takes three to four weeks. They have to travel again to get the cash.
“The banks there deduct hefty service charges,” he added.
In the “hawala” system, the money is delivered to a family’s doorstep within 48 hours of the transfer.
Due to easing of the foreign exchange regulations in these countries, the demand for dollars and pounds has declined and as a result the blackmarket for these currencies have vanished. As a result banks and money exchanges are offering a much better rate for these currencies than “hawala” operators.
Money changers in Dammam and Alkhobar admit that they are losing substantial business to “hawala” operators.
Some agencies like Western Union and Saudi American Bank’s Speed Cash only offer urban destinations to their customers. But until they reach into the remotest villages, “hawala” operators are likely to flourish.
