How economic sanctions drove money transfers in W/Africa underground!

Nov 11, 2021, 1:03 PM

More than $40 billion is sent to sub-Saharan Africa annually via money transfers, according to the World Bank. Mali ranks ninth among African nations for remittances sent back to the country by those living abroad.

In 2018, remittances accounted for more than $1 billion in Mali, or 6% of GDP, though the pandemic has led to a significant dip. And that figure doesn’t take into account informal and sometimes illegal money transfers, said to be at least sometimes twice or thrice as high as the official tally figure (link in French.)

In the wake of the August 2020 military coup in Mali, the Economic Community of West African States brought down harsh economic sanctions on the landlocked country. For several months, money could not be sent to or out of the country due to the punitive measures imposed by the regional bloc.

But it didn’t take long to find a workaround: Thousands are turning to Hawala, a money-transfer system that originates in 8th century India, to keep remittances flowing.

Sub-Saharan Africa’s local remittance market is dominated by Western Union and MoneyGram, which together control about 20% of the market.

But informal options have always been available. Hawala, which means “trust” in Arabic, started in 8th century India and has been practiced by local traders in Asia and the Gulf ever since.

Its mode of operation involves the transfer of money without actually moving it. A customer who intends to send funds to another city or country meets a broker in the Hawala network, hands in the money along with a small fee, and provides the name and contact of the beneficiary. The broker contacts his counterpart closest to the beneficiary and gives instructions for payment. That’s it. There’s no need for a computer system, control codes, or ID cards like with regular transfers.

In sub-Saharan Africa, each country or sub-region seems to have a specific name. In Niger it is called Nita; in Mali, Senegal, and Comoros it is known as Fax; and in Somalia it is referred to as Xawala.

But no matter where it is, the system is entirely based on trust and the use of connections, which leaves little room for cheating: Anyone who absconds with someone’s money faces severe punishment, and is at the very least unlikely to get any repeat customers.

“Our network processed hundreds of thousands of transactions within Africa, from Europe and even from North America, all connected to Mali, during the sanction period,” says Ibrahima. “Even government officials were using our system.”

Beside the ability to get around sanctions, Hawala brokers say the system has other advantages, which have helped to maintain its repeat customer rate.

Authorities argue that Hawala invites fraud, and fraudsters do turn to the time-tested method. “When we are paid a large amount of money, transfer companies either block the transaction and return the money or ask for justifications which we cannot provide,” says one 26-year-old man, who uses Hawala for fraud and agreed to speak with Quartz on the condition of anonymity.

But high fees, economic sanctions, and routine restrictions from money transfer operators are making Hawala increasingly popular among many other types of customers. The Ivory Coast-based fraudster says his last transaction—$30,000 from Europe—came safely through Hawala, while Jean Marie Djoum from Cameroon turned to Hawala after funds sent for her mother’s hospital bills were blocked by the money transfer agency. (Money transfer operators routinely place restrictions on transfers destined for certain countries in the wake of recurrent fraud cases.)

A Guest Editorial