The ongoing cross-border insurgency dominated by Boko Haram in the Lake Chad Basin has disrupted banking systems across the region, fuelling the growth of the informal hawala system as an alternative channel for transferring money, especially between countries.
‘Even people who were previously unaware or sceptical of the system now use it,’ a Bureau de Change trader in Maiduguri, northeast Nigeria, told ENACT researchers for a new study.
The Lake Chad Basin – spanning Nigeria, Niger, Chad and Cameroon – is a region of complex crises, including extremist attacks, displacement, climate change-induced resource scarcity, economic disruption, and governance challenges.
Beneath these visible crises lies a less scrutinised phenomenon: shadowy financial methods that enable monetary mobility, facilitate commerce, and sustain both vulnerable communities and criminal networks.
The Financial Action Task Force (FATF) defines these methods as systems that arrange for the transfer and receipt of funds or equivalent value and settle through trade, cash and net settlement over an extended period. Locally, it is known as ‘hawala’ (Arabic for ‘transfer’).
Celebrated for its efficiency and simplicity, hawala is a trust-based model that negates the need for the physical transfer of funds. It is safer than carrying hard cash over long distances.
What distinguishes these systems from other money transfer services is that their settlement method usually occurs outside the traditional banking system. They rely on a network of hawaladars (agents or brokers) who accept money in one location and instruct a corresponding hawaladar elsewhere to release an equivalent amount to the intended beneficiary.
While the cross-border insurgency has driven the widespread growth and adoption of hawala, weak financial ecosystems, bureaucracy and stringent regional economic and financial integration policies have also contributed to its use in the Lake Chad Basin.
Only 13% of households in Borno State use formal banking services. And a transfer from Kousséri in Cameroon’s Far North Region to Nigeria, just kilometres away, must go through the Swift banking system. Nigeria is not in the Central African Economic and Monetary Community region, so cannot benefit from regional banking clearing mechanisms.
Added to this, Boko Haram bank robberies in Borno State have led to many banking services closing – including in Maiduguri. An anonymous informant told researchers that, as a result, hawala had become critical to many individuals and communities in conflict-affected areas.
Here hawala is especially vulnerable to criminal exploitation and terrorism financing.
While some hawaladars that ENACT spoke to claimed ignorance about the criminal exploitation of the system, others shared their experiences of criminal dealings.
Hawala’s main vulnerability is when operators are unaware of the indirect risks associated with their activities. The absence of regulation creates the potential for abuse in illegal activities such as money laundering and terrorist financing. It also hinders authorities’ ability to monitor financial transactions and maintain compliance with international standards.
The absence of know-your-customer protocols in informal money transfer systems creates substantial inherent risks, primarily by facilitating illicit financial activities. The anonymity and lack of a paper trail in most outlets allows criminals to transfer illicit funds across borders without scrutiny, obscuring the money’s source and destination.
The system’s reliance on trust-based networks and its lack of formal oversight also makes it vulnerable to misuse. And the fact that operators often integrate it with other businesses, such as Bureau de Change, and are identified through personal referrals, further complicates the tracking of these transactions.
The decentralised nature of the system poses challenges for authorities attempting to trace transactions or link financial activities to specific criminal operations.
The same Bureau de Change trader told ENACT that Boko Haram uses hawala to facilitate its illegal activities. Militants in Niger and Chad use hawala to transfer funds to smugglers in Nigeria who supply them with contraband fuel. The anonymity of hawala also allows for the transfer of funds for other illegal commodities, like weapons.
Chadian authorities say terror groups use the system to transfer funds. The 2015 N’Djamena attacks and subsequent arrests of insurgent leaders triggered investigations into how the terrorists were moving funds. Hawala channels were used to purchase vehicles in Douala and launder proceeds from Boko Haram’s livestock raids.
Hawala operators told ENACT that foreign sponsors may also be using hawala networks to finance terror groups.
The widespread entrenchment of such unregulated financial transfer systems risks the FATF grey-listing more of these countries (Cameroon is currently the only one). Countries on the grey list undergo increased monitoring due to deficiencies in their anti-money laundering, counter-terrorism financing, and counter-proliferation financing regimes. This can reduce a country’s competitiveness to attract foreign investment and may predispose it to further global financial flow regulations.
N’Djamena police told ENACT they considered informal money transfer a threat to state security, as such large volumes of money were hard to trace.
A starting point in addressing these issues is for governments to develop a database for all hawaladars through local authorities. This may be through registering with the Prefecture (in Cameroon, Chad and Niger) and Local Government (Nigeria). Authorities could validate the records and provide guidelines on entry-level requirements, and the processes needed to issue licences.
Local authorities could also work with hawaladars to develop and popularise guidelines for customers who use the system. The modus operandi guiding operations must include records of customer identities, transactions, and the purpose of transactions.
Informal money transfer are integral to the Lake Chad Basin’s local, national and regional economies. While the system offers the advantages of speed, lower charges and financial inclusion, a lack of regulation in the sector poses significant threats to national and regional security. Reforms and regulation to reposition the system for transparency are needed – and these must consider the concerns of both users and operators.
Oluwole Ojewale, ENACT Central Africa Organised Crime Observatory Coordinator, ISS Dakar, and Raoul Sumo Tayo, Senior Researcher ENACT Central Africa, Yaoundé
Image: OLYMPIA DE MAISMONT / AFP
