Hawalaas credit: recognizing howhawalasupports the business climate in Afghanistan

Purpose - The purpose of this study is to explore the role ofhawalain supporting Afghanistan’s business climate. It illustrates the use ofhawalaas credit and its importance for the local merchant community. Design/methodology/approach - The empirical data presented in this article draws from more than 83 semi-structured interviews with Afghan merchants, business leaders, hawaladarsand judicial officials, conducted between March and August 2017 in five major provinces of Afghanistan, namely, Kabul, Herat, Balkh, Nangarhar and Kandahar. These five provinces collectively represent half of Afghanistan’s economy, one-third of Afghanistan’s total population and more than four-fifth of Afghanistan’s urban population. The commercial courts that sit in these five provinces hear more than 90% of total commercial disputes in the country. Findings - In Afghanistan, despite their reputation for being the bankers of terrorists and criminals,hawaladarsprimarily serve Afghan merchants – the overwhelming majority of their customers – helping them cope with an uncertain business climate. Within supply chains, Afghan importers rely on credit-hawalato protect themselves from the interruptions of cash flow that are prevalent throughout the Afghan economy. Practical implications - Drawing on extensive field research, this article highlights howhawalastabilizes financing and markets in Afghanistan, arguing that whilehawalaregulations are necessary to counter abuse ofhawala, regulators must be cognizant of howhawalais used in financing of legitimate businesses, or they will exacerbate the problems of access to credit. Originality/value - While the historical studies ofhawalareveal its inextricable link with trade financing, the currenthawalaliterature completely neglectshawalasystems’ contemporary financing role. Instead, the literature is completely dominated by the globalization trend of terrorism, money laundering and worker migration. Neglecting the trade financing role ofhawalacauses policymakers not to appreciate the impacts ofhawalaregulations on the trade fully. Overlookinghawalas’ role in financing transnational trade also results in the exclusion of an important group of stakeholders – namely, merchant-users ofhawalaservices who are the main beneficiaries ofhawaladars’ financing services – from the process of regulation ofhawalasystems. The main reason thathawalaregulations have failed to gain tractions in countries such as Afghanistan is that these regulations have not been cognizant of the multifaceted functions ofhawalamarkets and do not include all stakeholders in the regulation process.