LONDON // The premises of £press Money in a Victorian red brick facade on Tooting Broadway could hardly be more drably typical of South London. But over the past year, the fortunes of this small-time money-wiring business have depended almost entirely on complex power plays in far away Pakistan.
In November last year, Khanani and Kalia International (KKI), the Pakistan currency exchange through which £press Money did most of its business, was abruptly shut down, its founders, Munaf Kalia and Javed Khanani, were thrown into jail, and £press Money lost most of its business. "They were reliable people and they sent money instantly to the small villages in Pakistan," complained Sadia Khan, who started working at £press Money a month before the clampdown.
Without KKI's network, £press Money could transfer funds only to branches of established banks in Pakistan, and as a result, it lost a huge amount of custom. The beneficiary, ironically enough, was the owner of a nearby dress shop, who, according to Mrs Khan, arranged for money to be transferred to Pakistani, through the illegal (in Britain and Pakistan) and unregistered hawala system. "He did very good business at that time," she said. "People told us, 'he's giving a better rate then you, and he's giving instant money, so why can't you do that?'"
It was exactly this kind of illegal operation, albeit on a much bigger scale, that KKI stands accused of. To £press Money, KKI, with its modern web portal, looked like a legitimate money wire service. The exact charges against KKI have yet to be made clear. But the implication is that it was the front end of a vast hawala operation, which bypassed the formal banking system and allowed enormous, unaccounted sums to be shifted out of the country.
The clampdown is the latest episode in a long-standing battle for control over the remittances market. Pakistanis living abroad sent home nearly US$8 billion (Dh29.38bn) in the year to March, according to the State Bank of Pakistan. According to the World Bank, last year Indians sent home some $52bn in remittances and Bangladeshis $9bn. Estimates vary, but between 30 per cent and 55 per cent of the money sent home is thought to go through the hawala market.
The advantage hawala has over the formal banking sector is its simplicity, lack of identification requirements, form-filling, or engagement in global currency and settlement markets. As a result, neither the formal banking sector in India and Pakistan, nor money wire services such as Western Union and Moneygram, UAE Exchange, Wall Street Exchange or Dollar East, can compete on cost. B Iqbal, a bank manager at the Tooting branch of Pakistan's Habib bank, said his bank hardly even tried.
"From a business point of view, there's not much money in it," he shrugged. "I get paid £15 (Dh89.65) an hour, and it takes up to half an hour to do a transfer, so it takes £6 to £7 just in terms of HR costs. Western Union and Moneygram have to take the same details down, so it must be the same for them." KKI's demise finally allowed the banks to compete. Within a month of the shutdown, Mrs Khan received a visit from an agent from Xpress Money, an affiliate of Dubai's UAE Exchange.
"We had very good ties with the government of Pakistan and we got their buy-in on this," said Vivek Venkateshwar, the Europe head of Xpress Money. "So the government helped us to bring down the cost of transactions." A month before Khanani and Kalia was shut down, Pakistan's government had given the State Bank of Pakistan a rebate on currency transfer commissions, which the bank in turn passed to Xpress Money and other brokers who used the formal banking system. Effectively, the Pakistan government was paying the commission for anyone who used the banking system to send remittances home.
"My Pakistan remittances alone have grown by 530 per cent," Mr Venkateshwar said. Xpress Money uses the internet and partnerships with a long list of Pakistan's banks and exchange houses to deliver money as close to the destination as possible in Pakistan. But its reliance on formal banks means it still cannot get as close to recipients as KKI used to. "They were doing hawala," Mr Venkateshwar said.
pj"What we do differently is that we clearly follow the banking system, all our deposits go through the banking system." Pakistan's drive against hawala made more progress last month, when it suspended the licence of a second exchange company, Zarco. India's remittance market is more than five times the size of Pakistan's, but banks cannot rely on the government to clampdown on the hawala operators.
Instead, entrepreneurial banks such as ICICI and Bank of Baroda are using technology to bring down charges and extend their reach. ICICI's Money2India website charges about £6.50 to have £250 delivered in rupees, in cash, to a recipient in India, about half what Western Union charges and not far off the hawala rate. It is having an effect. Five minutes down Tooting Broadway from £press Money is a small Gujarati supermarket, whose owner arranges hawala transfers to Mumbai as a side business.
He taps out the sum requested on a calculator by his desk, and makes an estimate of how much it would cost. "Yes, I can do it," he says. "I know people." But he suggests that it might be better nowadays to use formal channels, as the rates offered by banks such as ICICI and Bank of Baroda have improved so much and people no longer see hawala as reliable. "It's becoming very less, very less," he said about the hawala business. "People prefer using ICICI."
Mr Venkateshwar said Xpress Money also hoped to be able to take on the hawala operators in India. "If you have negotiated well with all the banks and you have your own treasury team which buys and sells at the right price, you can beat the hawala system. The illegal side is not growing any more. It's coming down." firstname.lastname@example.org