Is Hoondi or Hawala Halal in Islam?

Hoondi, also known as “hundi” in parts of the Indian subcontinent, and its counterpart “hawala” widely recognized in the Middle East and South Asia, are informal money transfer systems. They operate outside the boundaries of traditional banking channels, relying primarily on a trust-based network of brokers or agents.

In some Muslim countries, the practice of hoondi has raised eyebrows. These nations have put legal safeguards in place with the aim of preventing money laundering, ensuring appropriate tax collection, and preserving their foreign currency reserves. Agents facilitating hoondi transactions often evade formal financial channels, resulting in the absence of tangible currency transfers across borders. Such transactions, being largely untraceable, may sometimes involve an agent offsetting an import payment in one country with an export payment in another, or vice-versa.

Islamic Perspective on Hoondi and Hawala in Islam

Bismillah-ir-Rahman-ir-Rahim.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

From an Islamic lens, every financial transaction, including those via hundi or hawala, is evaluated for elements of interest (riba) or any unjust gains. Riba is a practice strictly forbidden in Islam.

1. Hawala: Fundamentally, hawala transactions don’t incorporate interest. Thus, if such a transaction steers clear of interest and other Islamically prohibited elements (such as undue uncertainty or gambling), it could be seen as halal (permissible) in light of Shariah. However, its permissibility can be questioned if used for illegal activities like money laundering or tax evasion, as this breaches the broader Islamic principle of adhering to the laws of the land and avoiding harm.
2. Hundi: The hundi system is viewed through a similar prism. Transactions devoid of forbidden elements might be permissible in Islam. But, its use for evading taxes or supporting other unlawful activities makes it haram (impermissible) due to overarching ethical and legal norms present in Islamic jurisprudence.

The legal stance on hawala and hundi diverges across countries. Both systems often come under scrutiny because they can be channels for illicit activities, from tax evasion to financing terrorism.

For tailored religious advice, consulting an erudite Islamic scholar or jurist who is well-acquainted with Islamic finance and the nuances of hundi and hawala is advisable.