Nepal | June 04, 2020

Consequences of hundi

• TOPICS

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:

Brazil

Brazil sets another record for daily coronavirus deaths

RIO DE JANEIRO: Brazil registered another record number of novel coronavirus deaths over the last 24 hours, the health ministry said on Tuesday evening, as the pandemic in Latin America's largest country shows no signs of slowing down. The nation registered 28,936 additional cases of the nove Read More...

High-level panel to decide on easing lockdown by tomorrow

KATHMANDU, JUNE 2 The High-Level Coordination Committee for the Prevention and Control of COVID-19 formed under Deputy Prime Minister and the Minister of Defence Ishwar Pokharel will decide in a day or two whether or not to ease the lockdown. Member Secretary of the committee Narayan Prasad Bi Read More...

FIFA adds voice to protests over Floyd's death

BERN: World soccer's governing body FIFA has joined sports leagues, teams and players around the globe to express solidarity amid outrage over the death of George Floyd, an unarmed black man killed in police custody in the United States. The National Football League, National Hockey League an Read More...

Nepal's ruling party stresses dialogue with India to resolve territorial dispute 

Kathmandu, June 2  Nepal Communist Party (NCP) lawmaker Narayan Kaji Shrestha urged India to sit for dialogue with Nepal to resolve Limpiyadhura, Lipulekh and Kalapani issues. He welcomed Indian Defence Minister Rajnath Singh's remark about resolving border disputes with Nepal through dia Read More...

Nepali Congress registers statute amendment bill 

Kathmandu, June 2 The main opposition Nepali Congress today registered a private constitution amendment bill at the Parliament Secretariat seeking to change the constitution's provisions related to citizenship, language, provincial boundaries and formation of a boundary commission. Eight Nepal Read More...

Dhangadi  quarantine

Quarantines in Sudurpaschim bursting at seams 

Dhangadhi, June 2  With the increasing number of returnees from India, the quarantine facilities in Sudupaschim Province are almost packed. The number of migrant workers returning home from India is increasing every day. According to Kailali District Administration Office, around 5,000 Read More...

Nine businessmen held for gambling, remanded to custody 

Kathmandu, June 2 Nine businessmen, some of whom are ‘well-known faces’ in the business fraternity, were sent to five-day police custody after being arrested from a gambling den last night. Deputy Superintendent of Police Raj Kumar KC, also the spokesperson for Metropolitan Police Range,  Read More...

PCR tests of all quarantined persons fraught with problems 

Kathmandu, June 2  The Ministry of Health and Population said that implementing the Supreme Court’s order to conduct tests for coronavirus on all quarantined persons across the country using polymerase chain reaction method was a daunting task. Earlier, the Supreme Court had issued an order Read More...