n./adj. [Hindi/Urdu] an illegal system of remitting cash from abroad to India. The hawala dealer accepts hard currency abroad and instructs an associate to deliver Indian rupees to a recipient living in India. No money passes through official channels. Since such transactions cause no benefit to India´s foreign exchange reserves, it is banned.
The reason for its popularity is because hawala dealers offer higher
exchange rates and the transfer is done with very little delay or expense and leaves no paper trail. Hawala operations are closely allied with other illegal activities such as gold smuggling or drug trafficking.
The hawala dealer living abroad gets a good supply of hard currency
with which he buys gold (or drugs or arms). He sends the contraband to his Indian associate who then sells it in India. The Indian associate uses the Indian currency he gets by selling the contraband and fulfills his commitments to make hawala payments to the individuals referred by the hawala dealer. The huge margins available in trading in currency and smuggling in contraband keeps the hawala operations in profit.
The hawala system is so efficient and so difficult to trace back that
even foreign intelligence agencies like the Pakistani ISI use the hawala system to send funds to their colloborators in India.