Sri Lanka’s Central Bank has moved to end the unregulated status of the country’s informal Hawala and Undiyal money-transfer networks, bringing these parallel financial channels under a strict regulatory regime. The Central Bank of Sri Lanka (CBSL) is now enforcing the Money or Value Transfer Service (MVTS) Providers Regulation framework, requiring operators to formally register, maintain minimum capital and function under state supervision.
Under the MVTS Providers Regulations No. 1 of 2024, the CBSL has become the direct supervisor of all money-transfer channels. Operators who remain outside the registration framework are classified as illicit and can face enforcement under Sri Lanka’s anti-money-laundering laws.
A significant policy change came in July 2026, when the CBSL reduced the minimum capital requirement for local money-transfer service providers from Rs.20 million to Rs.15 million. The reduction is intended to lower the financial barrier for informal operators willing to enter the legal financial system.
The move comes against the backdrop of a substantial underground financial economy. Exact transaction figures remain impossible to establish because Hawala and Undiyal transactions operate outside conventional reporting systems. Financial Intelligence Unit (FIU) information indicates that more than US$10 million a day—over US$3.6 billion annually—passes through informal networks. Independent research places wider underground parallel remittance flows considerably higher, between US$5 billion and US$7 billion a year.
The number of active operators is equally difficult to determine. Hawaladars operate through networks embedded in retail shops, jewellery businesses and import-export companies. While only three major foreign-linked transfer providers formally met the initial registration cycles under the new regime, the number of local sub-agents operating through the informal network remains unquantified.
The economic consequences are significant. Because Hawala and Undiyal transactions are settled through counterparties rather than conventional cross-border transfers, foreign currency can remain offshore. This deprives Sri Lanka of foreign-exchange liquidity that could otherwise support imports and national reserves.
The networks also operate with parallel exchange rates that can outbid formal banking rates, creating incentives for remittance recipients to bypass commercial banks. This can divert foreign-worker remittances from formal channels and place additional pressure on the Sri Lankan rupee.
Trade is another major vulnerability. Importers and exporters can use Undiyal arrangements alongside under-invoicing or over-invoicing, bypassing normal customs procedures and potentially reducing government tax revenue.
The CBSL and the FIU are therefore pursuing a dual strategy: make formal participation more accessible while intensifying action against operators who remain outside the legal framework. Unregistered networks now face joint enforcement action, making the transition from shadow finance to regulated money transfer increasingly unavoidable.