Money transfer between Nepal and India has always been a crucial part of cross-border trade, family support, and business transactions. While official banking channels and remittance services exist, many people still rely on informal methods like Hawala due to its speed, convenience, and often better exchange rates. However, the Hawala system operates in a legal gray area, and its underground nature makes it difficult to regulate.

This article explores how the Hawala system works, why people prefer it over formal banking, the risks involved, and how the exchange rates compare to official rates.

What is the Hawala System?

Hawala is an informal money transfer system that operates outside traditional banking networks. It relies on a network of brokers (called Hawaladars) who facilitate the movement of funds across borders without physically transferring money. Instead, transactions are based on trust and recorded through handwritten notes, phone messages, or digital logs rather than official banking systems.

For example, if a person in Nepal wants to send money to India, they hand over cash to a Hawaladar in Kathmandu. The Hawaladar then contacts their counterpart in India, who delivers the equivalent amount to the recipient—often at a better rate than banks offer. This system bypasses formal exchange controls, making it a preferred option for many.

Why Do People Use Hawala for Nepal-to-India Transfers?

Despite the availability of bank transfers and remittance services, many Nepalese individuals and businesses still use Hawala for cross-border money transfers. The reasons include:

1. Faster Transactions

Official bank transfers between Nepal and India can take days due to regulatory checks and banking procedures. In contrast, Hawala transactions are often completed within hours.

2. Better Exchange Rates

Hawala rates are often more favorable compared to the official exchange rates set by banks. Since Hawala operates on supply and demand principles, people can negotiate better rates with Hawaladars.

3. Avoiding Banking Restrictions

Nepal imposes restrictions on the amount of money individuals can legally send abroad. This can be a challenge for businesses and families who need to transfer larger sums. Hawala offers a way to bypass these limits without paperwork.

4. No Need for Bank Accounts

Many migrant workers in India and Nepal do not have access to banking services due to documentation requirements. Hawala provides them with an easy way to send money home without a bank account.

5. Privacy and Anonymity

Unlike banks that require detailed customer verification, Hawala transactions often require only a name and a phone number, making them attractive for people who value privacy.

How Hawala Exchange Rates Are Determined

Hawala rates fluctuate daily based on demand and supply in the underground money market. The key factors influencing Hawala rates for Nepal-to-India transfers include:

• Currency Demand: If many people in Nepal want to send money to India, the exchange rate becomes more favorable for Indian rupees.
• Political and Economic Factors: Any instability in Nepal’s economy can lead to fluctuations in Hawala rates.
• Bank Rates and Restrictions: When banks impose stricter regulations, more people turn to Hawala, leading to higher rates.
• Gold Prices: Since some Hawaladars use gold as a backup for transactions, changes in gold prices can impact the rates.

A typical Hawala rate for Nepal-to-India transfers might look like this:

• Official Exchange Rate: 1 NPR = 0.625 INR
• Bank Transfer Rate: 1 NPR = 0.620 INR (after fees and conversion charges)
• Hawala Rate: 1 NPR = 0.635–0.640 INR (depending on location and Hawaladar)

As seen above, the Hawala rate can be higher than the official rate, making it more attractive to users.

Risks of Using the Hawala System

While Hawala offers benefits like better rates and faster transfers, it also comes with several risks:

1. Legal Issues

Hawala is considered illegal or semi-legal in many countries because it operates outside the formal banking system. Authorities in India and Nepal regularly crack down on Hawala networks, leading to arrests and confiscation of funds.

2. No Consumer Protection

Unlike banks and regulated money transfer services, Hawala transactions offer no legal protection. If a Hawaladar disappears with your money, there is no way to recover it.

3. Risk of Scams

Since the system is based on trust, fraud is common. Some Hawaladars may take money and disappear, especially if they are not well-established.

4. Government Crackdowns and Seizures

Governments monitor illegal money transfers closely. If a Hawala network is raided, any pending transactions can be delayed or lost entirely.

5. Links to Criminal Activities

While many people use Hawala for legitimate reasons, authorities associate it with money laundering, tax evasion, and even terrorist financing. This means that even if you are sending money for personal use, you could be indirectly connected to illegal activities.

Alternatives to Hawala for Nepal-India Transfers

If you want a safer and legal way to transfer money from Nepal to India, consider these alternatives:

1. Bank Transfers

Nepali banks like Nabil Bank, Himalayan Bank, and Nepal SBI Bank allow direct transfers to Indian bank accounts, though they may have lower exchange rates and higher fees.

2. International Remittance Services

Companies like Western Union, MoneyGram, and IME Remit provide a secure way to send money, though their exchange rates might not be as good as Hawala’s.

3. Mobile Payment Apps

Some mobile payment solutions allow cross-border transfers. For example, PhonePe and Google Pay offer limited services between Nepal and India through linked accounts.

4. Cryptocurrency Transfers

Some people are now using Bitcoin and USDT (Tether) to bypass banking restrictions and transfer funds instantly. However, this method carries its own risks due to crypto volatility and regulation issues.

Final Thoughts

The Hawala system remains a popular choice for Nepal-to-India money transfers due to its speed, convenience, and better exchange rates. However, the risks involved—including legal consequences, fraud, and lack of consumer protection—make it a high-risk option compared to official banking channels.

If you choose to use Hawala, ensure that you are dealing with a trusted Hawaladar. However, for safer and more secure transactions, consider using regulated remittance services or bank transfers.

Disclaimer

This article is for informational purposes only and does not endorse or encourage the use of illegal money transfer methods. Hawala transactions may be illegal in some jurisdictions and carry financial and legal risks. Readers should exercise caution and comply with all applicable laws when transferring money across borders.