Use the links in this page to see all the cross-references and discussions about the informal economy, and in particular informal finance across all the sections.
Additional background:
About the informal economy
**Informal economy ****Although difficult to quantify, an additional characteristic of Sudan is its significant informal economy. While it is common for countries in the region to have sizeable informal labor markets and exchange networks focused on lower-income segments of the population, Sudan stands out due to its extensive informal economy linked to extractive industries. A significant portion of the revenues generated from gold and oil extraction operates completely outside of the formal economic system [13].
About hawala
!! Hawala companies, micro or small businesses that broker money, are historically an important part of the social fabric of most middle-eastern societies. Their business model is to enable moving money from one location to another (and incurring the related risks). As such they are in effect the informal predecessor of FOREX bureaus. Money traders are used by vendors daily, by all traders and other businesses, as well as by the general population and the diaspora for remittances. Typically, in Sudan, a given hawala company - especially the bigger ones - will often use a mix of branch-based and agent-based operational model: they often have a little shop in an urban centre or a central marketplace as well as a few agents that are mobile [132].
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<aside> 💡 Informal transfer does not mean informal agents! **Hawala is an informal system in the sense that the money transfer is not under authority of a central bank, and as such it happens outside of the international banking system as well. Yet this doesn’t mean that hawala companies operate entirely independently from legislations and formal financial institutions. In other words, you have legal and illegal hawala companies. A legal hawala company typically has to be registered and the company also typically has its own bank accounts (which fall under formal international financial regulations and KYC control). In fact, in many countries, like Yemen for example, all banks have relations with one or several hawala companies. Aside from these official, registered hawalas, there are many unregistered, individual money traders that provide similar services at a smaller scale. These money traders are still used by the population on a daily basis to avoid waiting lines or the paperwork required when using registered hawala. But they are illegal and never used by larger businesses or international organisations. In short, the money transaction is informal, but the business entity that carries on the financial service is not necessarily informal.
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Provided that larger, registered hawala and adequate due diligence, hawala is a solid option for both international and domestic transfers. Apart from concerns related to CTL/AML and sanctions, the main hesitancy in using hawala is usually associated with fiduciary risks and capacity. However, a better understanding of the system can help alleviate some of these concerns. If a hawala network is registered and operates as a large company, it can be relatively safe and have the capacity to handle most financial transactions in the country. Cash-based interventions or full humanitarian cashflow, such as staff and supplier payments, can be managed by hawala networks, especially if distributed among different agents. This would represent only a fraction of the funds they handle. In addition to their capacity, hawala networks are less likely to face liquidity constraints, making them more reliable for cash out points. Concerns about the reach of hawala agents inside Sudan are also minimal. Many hawala companies offer mobile services, allowing them to go to the required locations. They generally have the ability to cover large areas, including remote and conflict-affected regions, and operate in complex security environments. Since hawala agents are businessmen whose livelihood depends on their ability to move money, they have strong incentives for smooth transactions and often have robust mitigation and security measures in place. For more information about scoping for partners, please refer to Impact on Procurement
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<aside> 👀 What are the encashment options with hawala? Currently, funds are still regularly collected by individuals (vendors and traders on a daily or weekly basis or private individuals receiving remittances from family members) at a hawala’s office, most of which are situated in urban centres. In rare cases, the pick-up area can be in a third location agreed by both the hawala agent and recipient, but hawala agents would only consider doing so for larger exchanges. When security conditions are more stable, most recipients reported that they felt comfortable travelling up to 6km to receive funds, and that this also applied to women, the elderly, and minors under sixteen. Common marketplaces are also an important locus for cash access since it is the location where most currency exchange happens. Depending on whether the participant goes to the hawala office or whether a collective distribution is organised with the support of an hawala agent at a distribution site, there is also variation in terms of how much information about the beneficiaries the hawala agent needs to access for the purpose of verifying their identity. If there are constraints about ID or concerns about information sharing, the most common and best practice currently is to favour having hawala come to distribution sites.
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About phone credit transfers