Soon after nine people were injured in a blast from low-intensity, improvised explosive device (IED) left by a customer at a popular quick-service eatery, The Rameshwaram Café, at Brookefield, in Bengaluru’s IT corridor on Friday (March 1) afternoon, the Ministry of Home Affairs (MHA) handed over the investigation of the case to the National Investigation Agency (NIA).
The incident occurred on a day when world-renowned celebrities—Bill Gates, Mark Zuckerberg and Ivanka Trump—were in India. Union Minister of State for Skill Development and Entrepreneurship Rajeev Chandrasekhar was quoted by Moneycontrol as saying that Bengaluru held a pivotal place for India’s digital economy. Much of Prime Minister Narendra Modi’s vision for the country’s innovation and digital ambitions rested on Bengaluru, which had a reputation for being a safe city for investors, expats and out-of-state IT workers, he added.
A clutch of cases recorded in Karnataka in 2022—including two cases of terrorism, registered in the Karnataka’s Mangaluru and Shivamogga regions—involving a gang of 10 youths has come under the lens because of the similarities in the IED used in the Bengaluru incident. Undertrials arrested in those cases and lodged in Bengaluru Central Prison are now being interrogated.
Karnataka home minister G Parameshwara has given the assurance that eight teams have been formed and all of them are looking in different directions and working on different aspects. And one of these could well be the illegal money trail that finances such operations.
Karnataka is a hub for giant tech firms and contributes towards 42 per cent of India’s IT exports. The city has more than 5,500 IT/ITeS companies and roughly 750 MNCs, providing direct employment to more than 12 lakh professionals and generating over 3,100,000 indirect jobs. The state hosts 40 unicorns, 440 GCCs and 14,000 startups. In addition to IT/ITeS, Karnataka holds a substantial position (40 per cent) in electronics design; 52 per cent in machine tools manufacturing; 65 per cent aerospace and defence manufacturing; and 60 per cent in biotechnology exports.
Hawala, Sindhi Finance And Financing Terror
The anonymity, speed, and reliability that make hawala and Sindhi Finance attractive for legitimate uses also appeal to those engaged in illicit activities. These two modes of money transfer embody ancient financial systems that, despite their legitimate roles, often come under scrutiny for their potential misuse in illegal activities, including financing of terrorism.
The absence of formal records and reliance on trust and anonymity pose significant hurdles for law-enforcement and regulatory bodies. Terrorist groups and criminal organizations have exploited these systems for ages to clandestinely move funds across borders, finance their operations and support their networks.
The Historical Context, and its Legitimate Uses
Originating centuries ago, both systems emerged in areas where traditional banking was undeveloped or unavailable, providing essential services for migrant workers and traders. Their reliability, speed and cost-effectiveness, especially in regions lacking formal banking infrastructure, have made them preferred methods of financial transactions worldwide.
Hawala offers a traditional method for transferring money without physically moving currency, relying on a network of brokers known as ‘hawaladars’ who operate on trust. A sender wishing to transfer funds contacts a hawaladar, who then arranges for the payment to be received by the intended party in another country, taking a small commission. The debts between hawaladars are settled through future transactions, which could involve cash, goods, or services.
Similarly, Sindhi Finance, although less known, functions on similar principles and is rooted in the Sindhi merchant communities. It has been instrumental in facilitating trade and commerce, utilizing extensive family and community networks for swift and efficient money movement across borders.
Financing Terrorism and the Bengaluru Connection
In Bengaluru, especially because of the apparent oversight by the local-law enforcement authorities, the practice of Sindhi Finance has raised concerns due to its high-interest lending model that emphasises profit over borrower reliability or the loan’s purpose. Borrowers seeking a loan of Rs 1 lakh receive only Rs 90,000, with the lender securing the deal through a signed promissory note and 10 blank security cheques, to be filled at the lender’s discretion.
This system bypasses thorough checks of the borrower’s background or the loan’s intended use, focusing solely on securing an exorbitant 48% interest rate. When borrowers fail to repay an instalment, lenders do not hesitate to use both legal and extralegal means to ensure repayment, exploiting the blank cheques as leverage. This practice has thrived under the insufficient scrutiny of Bangalore’s law-enforcement agencies, entangling borrowers in a cycle of debt and coercion.
However, despite its name that incriminates one particular community, it should be clearly understood that all Sindhis are not involved in this kind of activity. Only a minuscule of the Sindhi population indulges in such illegal acts, while a vast majority of them have been rendering social help to Bangaloreans in terms of education, health care and so on.
Global Response & the Regulation Challenges
Efforts to regulate the two informal kinds of transfer systems and mitigate their misuse for terrorism financing have proved to be complex. The decentralized, trust-based nature of hawala and Sindhi Finance, along with their integration into certain communities, complicates comprehensive oversight. More stringent regulations risk pushing these operations further underground, making them even more challenging to monitor and control illicit financial flows.
The Path Forward
Addressing the misuse of these financial systems requires a nuanced strategy that balances regulations with an understanding of the socio-economic contexts in which they operate. This involves international cooperation, intelligence sharing and enhancing the regulatory and monitoring capacities of nations. Moreover, there is a pressing need for accessible and affordable formal financial services for underserved populations, which could reduce reliance on informal systems and limit their exploitation for illegal activities.
Collaborative Global Approach Is Needed
While hawala and Sindhi Finance are vital for economic activities in many parts of the world, their potential for misuse in terrorism financing is a significant concern. A collaborative, multifaceted approach is essential—one that respects their legitimate use while preventing exploitation by malicious entities. The challenge of combating terrorism financing remains complex; yet, with global effort and strategic interventions, substantial progress is achievable.
(The author Girish Linganna of this article is a Defence, Aerospace & Political Analyst based in Bengaluru. He is also Director of ADD Engineering Components, India, Pvt. Ltd, a subsidiary of ADD Engineering GmbH, Germany. You can reach out to him at: [email protected])
(Views expressed in the article are of author’s own and do not reflect the editorial stance of Business Upturn)
