Hawala (also called hundi) is an informal money transfer system that has existed for centuries and remains essential to Somali economic life in Kenya and the Horn of Africa. Money is transferred without physical movement of currency, relying on networks of trusted brokers. The system enables remittances from diaspora to families in Kenya and Somalia and facilitates international trade.
How Hawala Works
A person in Nairobi who wants to send money to a relative in Garissa approaches a hawala broker (known as an hawaldar) in Nairobi. The sender pays the hawaldar cash plus a small commission. The hawaldar contacts a counterpart in Garissa, often via phone. The counterpart pays out the agreed amount to the recipient in Garissa (in local currency). No physical currency travels. The two hawaldars settle the debt later through reverse transactions or bank transfers. The system operates entirely on trust between hawaldars and between the system and clients.
Diaspora Remittances
Somali communities worldwide send remittances to family and relatives in Kenya and Somalia. These remittances are a critical source of income for many households in the north. Unlike formal banks (which require documentation and have high fees), hawala is accessible to informal-sector workers, undocumented migrants, and those without bank accounts. Remittances flow from the UK, USA, Canada, Scandinavia, Australia, Gulf states, and other destinations. Annual remittance flows to Somalia alone are estimated at 500 million to 2 billion dollars, much flowing through hawala.
Trust-Based System
Hawala depends entirely on trust between parties. There are no contracts or enforcement mechanisms outside reputation. A broker's business depends on reliability and honesty. Over time, hawaldars build trust with each other and with clients. This trust is built through family ties, clan connections, religious shared faith, and repeated transactions. The system is remarkably efficient and resilient because reputation is everything.
Scale and Integration
Hawala operators are integrated into broader Somali trading networks. A trader importing goods from the Gulf might use hawala to pay suppliers. A pastoral producer selling livestock to a trader might receive payment via hawala transfer from a buyer in Nairobi. Remittance flows through hawala are integrated into local economies. Small businesses operate substantially on hawala-based credit and transfers.
Government Crackdowns
Kenya has periodically cracked down on hawala networks, citing terrorism financing concerns. After 9/11, and particularly after Al-Shabaab attacks began (2011 onwards), Kenyan security forces targeted hawala brokers and money transfer companies. Operation Usalama Watch (2014) included raids on money transfer companies and alleged hawala operations. The government argued that hawala was being used to finance terrorism. Somali community leaders contested this, arguing that hawala was being unfairly targeted and that the crackdowns disrupted legitimate remittances and livelihoods.
Regulatory Tension
The tension between government regulation and community economic needs persists. Formal money transfer companies (Western Union, MoneyGram) operate legally but charge high fees. Hawala is faster and cheaper but operates in legal grey zones. Some hawala operators have been formalized as money transfer businesses. Others operate informally. The government's desire to track money flows for security reasons conflicts with the community's need for accessible, affordable money transfer.
Resilience and Adaptation
Despite government crackdowns, hawala persists because it serves essential economic functions that formal systems do not adequately serve. Hawaldars have adapted by becoming more discreet, using technology (coded messages, cryptocurrency), and moving operations. The system's resilience demonstrates both its utility and the limitations of government efforts to eliminate informal systems.
See Also
- Eastleigh Economy - Primary hawala hub in Kenya
- Eastleigh Security Crackdowns - Government crackdown context
- Dadaab Refugee Economy - Hawala in refugee context
- Kenyan Somali Diaspora (Global) - Remittance sources
- Camel Economy - Pastoral trade finance
- Al-Shabaab in Kenya - Terrorism financing concerns
- Kenya-Somalia Relations - Cross-border financial flows