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Abstract

The aim of this paper is to explore the ethical dimension of hawala, an ancient informal financial practice rooted in Islamic moral traditions. Widely used in countries with an Islamic background and their diasporas, hawala is considered an important vehicle for the financial and economic development of some less developed countries. Nevertheless, in Western countries, hawala is regarded with suspicion due its controversial ethical nature. Unlike other Islamic financial institutions, the controversial questions are not the legitimacy of profit sources or the interest charged, but rather the lack of transparency that surrounds hawala transactions. Yet, the literature on hawala has neglected its ethical perspective. Our study delves into this dimension with a critical approach, using the Triple Font Theory, grounded on virtue ethics. We conclude that if hawala transactions are carried out with honesty, and fairness, this practice deserves a positive ethical appraisal. However, it is necessary to implement efficient regulatory measures to guarantee that the system is not abused by money launders and criminals. In practice, it becomes imperative to bring over a change in the regulatory approach to hawala toward a more ethically, culturally, and economically sensitive strategy. Thus, future research should focus on how “hyper-norms” or fundamental principles inherent to humanity, which are common to both “formal” and “informal,” “Western” and “non-Western” financial practices, could run the new AML/CTF regulation agenda.

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Notes

  1. There is a good amount of papers focused on the regulatory challenges posed by the so-called Alternative Remittance Systems (Passas 2005, 2006a; Nakhasi 2007; Zagaris 2007; Bowers 2009; Wang 2011), the relationship with illicit activities (Passas 1999, 2003, 2004; Bala 2004; Felman 2006; Thompson 2006; Keene 2007; Van de Bunt 2008a, b) and the consequences that these systems have on the balance of payments of the countries through—informal—remittances (Glushchenko 2005; Redín 2013).

  2. “I assign to A a claim of mine against B, in order to satisfy a claim of A against me” (Schacht (1964/1982), p. 149).

  3. “I owe something to A and charge B to pay my debt” (Schacht (1964/1982), pp. 148–149).

  4. When Islamic countries fell under the influence of West European countries in the colonialism era, hawala gradually lessened its popularity.

  5. On the one hand, any informal economic activity has a positive impact on the disposable income per capita of a country, which promotes consumption and investment on small business activities. On the other hand, when the informal sector accounts for a significant amount of the economic activity, it has the potential to distort macroeconomic policies, and it entails considerable fiscal losses.

  6. The word suftaja originally comes from the Persian and it means “a bill of exchange or letter of credit” (Steingass 1963, p. 684).

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Redín, D.M., Calderón, R. & Ferrero, I. Exploring the Ethical Dimension of Hawala . J Bus Ethics 124, 327–337 (2014). https://doi.org/10.1007/s10551-013-1874-0

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