Finance. The ancient money transfer system hawala, born in the Islamic Middle Ages, is today the main tool for remittances of those arriving in Europe fleeing the war.

The bank for refugees

Yusuf has been living in Antioch for the last two years. He is a Syrian from Raqqa. He fled from the civil war and for fear of being conscripted by the army or by any of the Islamist groups that took over the north of his country. He left his family in Raqqa and found a job at an NGO in Antioch.

Yusuf worries about his brothers being easy prey for the Islamic State that has made the city its de facto “capital.” Hunger and unemployment have pushed many to wear the uniforms of jihadist groups, for a salary of a few hundred dollars so their families can survive. So Yusuf does what many Syrian refugees abroad do: He sends money home.

It is difficult for him to go through the traditional channels, either Western Union or the normal banking system. It is impossible to access these services in Raqqa. This is why those who live outside Syria use one of the oldest Islamic money transfer systems: the hawala.

A centuries-old method that resulted from excess riches and frequent trade with Europe and Asia, has found today new life through social networks: The transactions are sent in real time via Skype, Viber or Whatsapp.

The system (hawala in Arabic means “transfer”) is based on a network of agents and on trust. There are no written contracts, and it is almost a pact of honor: The sender contacts the agent at the place where he lives and gives him the money; the agent reports the sum to a second intermediary in the place where the recipient lives.

The code associated with the transaction will then be sent to both the sender and recipient. The second agent shall contact the recipient and deliver the money. Later, the two brokers offset against any amounts sent and received. Done.

In the Middle Ages, the hawala was created to meet the requirements of payment of goods sent around the known world, silk, fabrics, spices. “It was born as a commercial practice in the Islamic Middle Ages, when the Muslim empire created an ecumene of major proportions,” explains Professor Roberto Tottoli, professor of Islamic studies at Naples’ Eastern University to il manifesto. “It is a payment guarantee instrument which replaces bank transactions. The agreement with the operational partners is sealed by passwords, and the network of contacts ensures the delivery of the sum of money on the spot.

“The agents, which over time became real companies, did not exchange actual currency but they compensated the funds at a later date. Thus, different types of contracts were replaced by a more agile reality that quickly spread around the Mediterranean and Europe. The Arab world was extending the circulation of goods from the Atlantic Ocean to the Far East.

“It also spread to Italy where it is called the endorsement. It was successful because it was a more agile financial transaction in periods of stability. Obviously, this agility is determined by the fact that it is based on a pact of honor, a self-insured channel, with the trust on the contractors.”

And hawala’s commissions are much lower than other systems and have no religious limitations: “Islam forbids charging interest on loans, usury and random trade,” Tottoli explains. “Hawala charges are allowed (unless illegal conditions are evident) because it is a legitimate transfer with low commission costs. From this point of view, Islamic finance has a more ethical component than capitalist finance: Even if the practice was similar to the capitalistic process, they have developed formal rules that provide for the division of risk and the formal participation of financial circulation.”

Each month, Yusuf sends $500 to his family in Raqqa, which replaces his income from the factory job he held before the conflict, which paid for their living expenses. The first time he made contact with the hawala network, it was at a jewelry store in Sanliurfa, in southern Turkey, an unofficial money transfer “agency.”

Through Whatsapp, the intermediary communicated to its counterpart near Raqqa the recipient’s name and code. The following day, Yusuf’s brother collected the money. The jewelry dealer took a commission of $20, or 4 percent, much lower than a standard transaction with Western Union.

This is how the hawala helps many Syrian families to survive in conflict areas and areas controlled by the opposition, where the banking system has collapsed. Mostly, it helps support the younger ones: It makes it easier to avoid the enticement of armed groups. According to data collected by the U.N. agency IFAD, in 2014, the total amount of remittance from Syrian refugees was $84 million, and it increased 12 percent in 2015.

This market keeps growing because it is fluid, informal and bears no fixed costs: In southern Turkey, unofficial agencies hidden behind barber shops and grocery stores perform 50 transfers a day.

If we look at the rest of the world, the annual value of remittances by migrant workers via hawala hovers around $390 billion. It is virtually everywhere: Africa, North America, South-East Asia. You do not need to have any financial instruments, credit cards or bank accounts, or show your identity card. And in 24-48 hours, the money reaches its destination.

And even if needs have evolved over time, the hawala has not lost its attractiveness. For years, it has been used by smugglers to charge refugees in Africa and East for their trips to Europe. Ninety percent of traffickers access the network, for an estimated total of $2.5 billion per year in Europe.

The system is now well established. The refugee pays for the journey to the first agent who then pays the money to the trafficker in installments at each stage of the route, from Turkey to Greece to the Balkans. It is a third party that “protects” the refugee: The full amount is paid to the traffickers only when the refugee has reached his or her destination.

And because it’s almost impossible to trace, cut off from normal financial channels, the hawala is also used for illicit purposes. Global intelligence knows this well: This is how extremist groups and terrorists receive their funds, especially after Sept. 11.

According to the U.N., it is the supply route from the central government of the Islamic State in Syria to cells in Libya and Iraq. For ISIS, hawala is a cornerstone of its “state” system to receive and distribute funds, directly from private parties and indirectly from the Gulf countries.

“With the emergence of modern states,” concludes Tottoli, “the hawala has been successful all over the Islamic world, up to Pakistan and East Asia, because it offers a way to circumvent exchange restrictions and fees. An ancient instrument, but casual and more affordable. After Sept. 11, the problem of money laundering came up: The informality prevents the traceability of flows.

“But, from what I could ascertain, the proceedings opened in the United States or Europe did not end well because in most cases, money transferred through these channels was used for legal purposes: with the increasing presence of Islamic communities in the West, hawala has grown exponentially. And after the crisis we have lived through in the last 4-5 years and the wars subverting the Middle East, it is logical that people will use tools that ensure the circulation of money when it is almost impossible to access normal banking channels.”

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