Nepal | September 26, 2020

Consequences of hundi


Dhananjay Shah
Share Now:

Hundi is a type of informal remittance transfer channel. Mostly South Asian migrant workers use this channel, which is illegal in Nepal, to send money home. Passas (1999) coined the term Informal Value Transfer System (IVTS) and defined the IVTS as networks of people facilitating transfer of funds or value without leaving a trail of entire transactions that take place outside traditionally regulated financial channels. Hundi is primarily a type of IVTS or Informal Transfer System (IFT). Hundi is also at times interchangeable with “hawala”, which means transfer in Arabic. Peters (2009) asserts that hawala is crucial to the legal economies of millions of people with no access to bank accounts.

According to Reserve Bank of India, hundi refers to financial instruments evolved on the Indian sub-continent, Middle East, South Asia used in trade and credit transactions. They were employed as “remittance instruments” (to transfer funds from one place to another), “credit instruments” (to borrow money [IOUs]), “trade transactions” (as bills of exchange).

Hundi basically rooted in the Hindu societies of Nepal and India is also referred to as an alternative remittance system, informal money transfer system depending on the region; for example: fei chi’ en (China), padala (The Philippines), chit (Thailand), and underground exchange. Over the years, hundi, once recognised as the traditional way of remittance back in the British Raj in India, has now become controversial, usually an unofficial medium of remittance since it skips the banking channels and is not in tandem with the regulations of the central banks of many world governments. Nepal Rastra Bank does not recognise hundi as a remittance transfer channel.

However, hundi is still in practice in Korea-Nepal remittance corridor. Many economists have questioned its operationalisation in terms of validity, legality and reliability. Jost and Sandhu (2000) defined hawala as “money transfer without money movement. This definition importantly highlights one feature of hundi that money is not seen moving and the process is rather invisible. In fact, hundi funds result in less productive investments, encourage tax evasion and negatively affect governance and exchange reserves.

Some critics also relate hundi to terrorism financing, more questionably after the 2001 terrorist attack in the United States. Watters (2013) argues that hawala or hundi provides anonymity that makes the money transfer system “susceptible to abuse by criminals trying to hide drug money and other illicit funds.”

A version of this article appears in print on December 25, 2017 of The Himalayan Times.

Follow The Himalayan Times on Twitter and Facebook

Recommended Stories:

More from The Himalayan Times:

Ordinance moots 20-year jail term for acid attack

KATHMANDU, SEPTEMBER 25 The Ministry of Law, Justice and Parliamentary Affairs has prepared the draft of two ordinances proposing to increase jail term for acid attackers to 20 years and to regulate the sale and distribution of acid. Under the existing law, perpetrators of acid attack face a m Read More...

Hundreds of houses inundated in Saptari

RAJBIRAJ, SEPTEMBER 25 A few days of incessant rainfall has inundated hundreds of houses in Saptari district. Water from swollen Khado, Balan, Triyuga, Jita and Mahuli streams has gushed into houses in district headquarters Rajbiraj and many other rural areas. In Wards No 2, 4, 5, 7, 8, 11 Read More...

Thousands of mosques in Xinjiang demolished in recent years

BEIJING, SEPTEMBER 25 Chinese authorities have demolished thousands of mosques in Xinjiang, an Australian think tank said today, in the latest report of widespread human rights abuses in the restive region. Rights groups say more than one million Uighurs and other mostly Muslim Turkic-speaking Read More...

Bharatpur Hospital

Scrub typhus, dengue cases reported in Chitwan district

CHITWAN, SEPTEMBER 25 Even as the district is under the grip of COVID-19 infection, cases of scrub typhus and dengue have also been reported in Chiwan of late. As many as 69 scrub typhus patients and 24 dengue patients have been detected in the district in the past two months. According to Read More...

More health workers contract coronavirus

KATHMANDU, SEPTEMBER 25 The number of health workers being infected with coronavirus is on rise. According to the Ministry of Health and Population, as many as 600 health workers across the country have tested positive of the respiratory contagion till September 23. Health workers infected wit Read More...

Government urged to save life of agitating Dr Govinda KC

KATHMANDU, SEPTEMBER 25 The National Human Rights Commission today drew its attention to the deteriorating health of Dr Govinda KC, who has been on his 19th fast-unto-death since September 14. The senior orthopaedic surgeon had launched his hunger strike in Chandannath Municipality-6, of J Read More...

Two youths stage hunger strike

DAMAULI: Two youths have staged a fast-unto-death expressing solidarity with Dr Govinda KC in Tanahun’s Damauli on Friday. Sagar Ghimire, 25, and Binod Sapkota, 24, have launched the strike. Ghimire said they had started a hunger strike to pressurise the government to address all demands of Dr Read More...

Government committed to ending hunger, says Prime Minister Oli

KATHMANDU, SEPTEMBER 25 Prime Minister KP Sharma Oli addressed, through a pre-recorded video, a high-level side event titled ‘Poverty at a Crossroad: Using Leadership and the Multidimensional Poverty Index to Build Back Better’, organised on the margins of the 75th Session of United Nations G Read More...