The final receiver of money then contacts the second hawaladar, reproduces the remittance code, and receives the money (we explain the functioning of hawala in more detail in Sect. The hawaladar contacts another hawaladar in the target area and informs him about the amount of money to be transferred and a remittance code. ![]() 1 for an illustration): a sender of money approaches an intermediary called hawaladar, handles him a sum of money, and receives a remittance code for transfer to the final recipient. People use Hawala to transfer cash from one country to another (see Fig. Here we seek to explore the governance mechanisms accounting for the emergence, stability, and often surprising success of one of the most significant informal financial institutions, which is involved in informal money transfer around the world and is called Hawala. But until now, “very little is known about the mechanisms used by these groups to ensure that members abide by their obligations” (Anderson et al. Examples of these informal financial activities include Rotating Savings and Credit Associations, interlinking agricultural loans, informal value transfer systems (IVTS), and other ‘nonmarket institutions’ (Besley 1995), which are governed by the informal rules that are learned, internalized, and reinforced by the group members. This implies that they cannot be monitored or enforced by the legal authorities and their official regulation is possible only to a limited extent. Many financial transactions in emerging economies are arranged on an informal institutional basis.
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