Hundi: History & Legal Status

Hundi: History & Legal Status

Tags:      Gig Economy     Economy     WTO     WTO Public Stockholding     MSP     Economic Growth     Masala Bond     Environmental Performance Index     Forecast of Economic Growth     Functions of the Finance Commission

Hundi is an ancient financial instrument that has been used in various parts of the world for centuries. It is a type of promissory note that serves as an informal means of transferring funds between parties. The hundi system is typically used by traders who need to transfer large sums of money quickly and efficiently, without the need for banks or financial institutions. The Hundi history is rich and dates back to the medieval era. It is believed to have originated in India, and it was widely used by traders who needed to transfer funds over long distances. Hundi was also used by pilgrims who travelled to distant lands to visit holy sites. In a hundi system, the parties involved rely on each other's reputation and integrity.

Hundi is used interchangeably with hawala and people often wonder, ‘is Hundi legal or illegal?' Hundi is a legal financial instrument that operates within the formal banking system. Hundi transactions are recorded in the books of the parties involved, and they are subject to legal scrutiny. On the other hand, hawala operates outside the formal banking system, and the transactions are not recorded in any official documents.

An example of hundi hawala can help illustrate the differences between the two systems. Let's say that a person in the US wants to transfer Rs.10, 00, 000 to a person in India. The person in the US gives the money to a hawala operator in the US, who then contacts a hawala operator in India. The hawala operator in India then gives the equivalent amount to the recipient in India, without any official documentation.

In contrast, a hundi transaction involves a formal promissory note that is recorded in the books of the parties involved. The hundi note serves as proof of the debt, and as per the Hundi example, it can be used to enforce the debt in court if necessary. Hundi transactions are legal and subject to the same regulations as other financial instruments.In conclusion, hundi is an ancient financial instrument that has been used for centuries. While hawala and hundi are often used interchangeably, there are significant differences between the two systems. However, it is important to exercise caution when using the system, and to comply with all legal and regulatory requirements.