‘Hundi-Hawala being used to import used cars’

Stakeholders express urgent need for government intervention

LAHORE:

The prevalence of illegal money transfer methods, such as Hundi and Hawala, is taking a toll on Pakistan’s local auto industry, with importers increasingly resorting to these channels for bringing in used cars.

Warning of the implications, former General Manager at HinoPak Motors Limited, Zafar Ali said this issue has far-reaching economic consequences, from weakening the domestic auto sector to draining foreign exchange reserves.

Ali emphasised the urgent need for comprehensive government intervention to address the problem. He suggests that the authorities should implement stricter regulations on used car imports and take measures to combat illicit financial activities.

In recent months, the Pakistani government, with the support of law enforcement agencies, has launched a crackdown against dollar hoarding and illegal money transfers. As a result, the local currency has appreciated by more than 4% within a month. The crackdown is expanding to include efforts against smuggling, with a particular focus on gold and oil smuggling.

Estimating the precise amount of money funnelled out of the country through Hawala-Hundi remains a challenge due to the absence of a paper trail. “However, it is widely believed that these illegal channels account for a significant portion of foreign exchange outflows in Pakistan,” said Ali.

Hundi-Hawala are deeply ingrained in South Asian financial tradition, functioning predominantly outside the formal banking sector. These systems rely on trust-based transactions, where intermediaries facilitate cross-border money transfers, often serving diaspora communities. Their popularity lies in the simplicity, speed, and accessibility they offer, especially to individuals without access to formal banking channels.

The surge in used vehicle imports is a troubling trend, leading to a substantial outflow of foreign exchange. This financial outflow not only undermines Pakistan’s economic stability but also diverts resources that could be invested in critical sectors, says Ali. In the fiscal year 2022-23, over 6,500 used cars were imported, with more than 5,200 units arriving from July to August this year alone.

“Of greater concern is the reliance on illegal money transfer mechanisms like Hundi and Hawala, which facilitate the unauthorised movement of funds abroad. Ali called for immediate action against those exploiting import policies, engaging in illegal money transfers, and misusing the system for personal gain.

Published in The Express Tribune, October 25^th, 2023.

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