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.
“It was impossible to stop us because we don’t operate officially so sanctions don’t affect us,” says Konate Ibrahima, a Hawala broker based in Mali’s capital, Bamako. “Before the sanctions, some people were hesitant to work with us due to trust factor, preferring formal channels instead, but when those companies shut down in compliance with the sanctions, our system became the only way out.”
How informal money transfers work
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.
Boubacar Seck, a Senegalese-born operator based in Agadir, Morocco, says it’s not a far cry from how banks pay each other which is known as interbank settlement. “We take record of incoming and outgoing transfers and do the subtraction to see if there is a plus or minus,” he says. “When there is minus it means the network owes a broker. That person is paid from an incoming transaction.”
“Also, when people desire to purchase goods in another country they pay us the money and our counterpart over there handles the transaction and sends the goods. A family that wants to send money for their son’s school fees in Morocco or Tunisia, for example, hands the money to us and the boy is paid immediately. It sounds complicated to the outsider but we understand it perfectly.”
The practice goes by different names in different places. 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.
The case for Hawala
When sanctions were imposed on Mali in August 2020, Hawala was the “only way out,”says Konate Ibrahima, a Hawala broker in Bamako.
“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.
“We charge between 3% to 5% per transfer, unlike formal agencies that take between 10% and 12%, and close to 20% for intra-African remittances, says Mamadou Diawara, a Hawala broker from Guinea. “Secondly, we can send any amount. There is no daily limit of $3,000 to $5,000 like others impose. Our transactions are not affected by the exchange rate.”
Diawara believes Guineans would overwhelmingly choose these services if the West African country comes under sanctions next February, a possibility should the ruling junta refuse to hold a free and fair presidential election.
Brokers say Hawala is also safer than carrying cash. “Businesspeople now prefer this informal method to move their funds across borders because it is very risky to travel with a huge amount of money, and it would be too much to go through formal money transfer services and too slow using the bank, not to mention the high fees,” says Housseni Houeibib, a financial analyst at the University of Nouakchott Al Aasriya in Mauritania.
Most of the international transport companies now offer Hawala-like financial services for travelers to avoid carrying cash.”
The system is also popular in countries that do not allow outbound transfers, like Equatorial Guinea, Gabon, Nigeria, and Ghana, for example, where money can only be received but not be sent out via formal money transfer. Customers looking to move funds out of those jurisdictions resort to Hawala, which has a strong and active network between west and central Africa, according to Sébastien Ngwem, a broker who operates from Libreville, Gabon’s capital.
“Our network connects central Africa to west Africa and it has been explosive since the turn of covid-19 because people now send more cash than traveling,” says Ngwem.
“We process orders from Gabon, Equatorial Guinea, Cameroon, the Congos, and Guinea Bissau to Nigeria, Benin, Togo, Ivory Coast, Ghana, Mali, Burkina Faso, Guinea, and Senegal. It works smoothly without issues and customers are more than happy.”
The scale of informal money transfers
It is difficult to quantify the amount of money sent via Hawala in Africa due to a lack of official records. However, the central bank of the UEMOA (West African Economic and Monetary Union) space of eight countries says that over $450 million is moved back and forth each year through this method.
Houeibib at the University of Nouakchott Al Aasriya believes the figure could be much higher, considering the few options available to move large amounts of money legally across borders in the region.
One Ivory Coast-based transport company known as Leonard Transport, which plies the Abidjan-Accra (Ghana)-Lome (Togo) route, told Quartz that it processed a little more than 2.7 billion CFA francs ($4.8 million) in Hawala transactions last year.
Are the authorities aware of all that activity? Are there consequences for operators? The 46-year-old believes officials are aware but have never summoned anyone.
“It is difficult to know what we are doing if you are not in the network,” says Sébastien Ngwem, a broker who operates from Libreville, Gabon’s capital.
“You cannot arrest someone who brings money to me or me for handing cash to somebody. And there is no way they can impose taxes on us because we are not registered anywhere. Don’t forget, some government officials even use our services.”
Benefits vs. risks
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.)
Yes, there are risks: It’s not easy to find a broker because they don’t run a legal office, and the thought of handing a huge amount of money to a stranger makes people cringe. But “the fact that it is not official is what makes it Hawala,” says Patrick Amegbor, a retired risk analyst with Togolese Bank for Commerce and Industry.
“If they rent offices, they will have to pay taxes and follow the regulator’s guidelines like formal agencies. Those who use the service display some amount of trust which the system is based on, traditionally.”
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