Settling accounts: Indigenous bankers in search of new histories in the twentieth century

The Nineteenth-century Interlude

The nineteenth century saw the articulation of a new discourse on Indian credit practices, which were no longer dignified with the singular appellation of ‘banking’. This discursive shift accompanied major political changes and structural transformations in the trading and political economy of India, which in its colonised avatar saw the takeover of a huge segment of commercial operations by the English East India Company and private European trading interests. Politically, after 1818 and the formal establishment of British paramountcy, the hundis—which had heretofore been used to remit revenue proceeds as well as to finance extensive military operations—were rendered redundant with the establishment of British treasuries. New reforms targeted the circulation of multiple currencies, eventually leading to the imposition of a uniform silver currency in 1835. ⁵

In terms of the overall transformation of the Indian trading economy, the most noticeable feature was a major shift in the nature of exports and the subordination of India to the requirements of the metropolitan economy in London. Exports of manufactured goods were replaced by those of raw materials (opium, cotton) alongside a massive expansion of new imports, cotton manufactures (textiles) and machine-made yarn into India. These changes were overseen by European private merchants and free-traders, the former having displaced indigenous shippers and freighters as early as the 1760s and 1770s. The post-Plassey years saw a massive contraction of specie and bullion imports, which affected traders and bankers who had to eventually adapt to the changing conditions that accompanied the articulation of a colonial economy. Some sections of commercial society responded positively to the opportunities that came in the wake of the operations of European agency houses (English trading companies working as agents in India for commercial houses in England on commission): accumulating capital over the course of the commission, engaging in brokerage operations, and even trying their hand at managing agency businesses. Others consolidated their investments in and financing of internal trade and supply operations, especially evident in western India. Here, local commercial societies continued to retain their interest and investment in financing local trade and brokerage as well as in shipping (albeit at lower levels), which in fact gave them a measure of immunity against market shocks and colonial policies. However, the official representation of local commercial operations was not sensitive to the reality on the ground and continued to define their functions under the category of ‘indigenous banking’ which was made synonymous with money lending at exorbitant rates, and described as plutocratic and irrational in contrast to European-style banking which was painted as democratic and progressive. This attitude is reflected in a later report by Reginald Murray who stated:

Under the old system, if high rates of interest or some fancied form of security were not available, the money lender would sit tightly on his money bags. At times he would be advised by his Jogi or Sunyasi, or holy ascetic, that it was an unpropitious time to invest. Some persons, especially large zemindars, believed it added to their popularity and importance to display huge piles of money bags on rent days and festive occasions. ⁶

This comment was completely off the mark with regard to the actuality of trade practices and credit operations subsumed under indigenous banking, but its sweeping tone nevertheless indexes the discursive assault of the colonial state against commercial activities undertaken by Indian business groups over the course of the nineteenth and early twentieth centuries, during which time a division between European banking and indigenous banking was formally drawn.

Parallel Worlds of Money and Credit: The Exigencies of Transition Politics in the Nineteenth Century

The deployment of a set of rhetorical strategies to define and redefine indigenous banking came in the wake of state-sponsored initiatives to support the setting up of a new European banking system. Through the eighteenth and the first quarter of the nineteenth century, when the colonial state was yet to consolidate its territorial gains, Indian bankers bankrolled political and military operations, oversaw revenue payments, and funded the movement of both commodities (peasant agriculture as well as local and mid-level marketing of agricultural and commercial produce) and people (pilgrimage) through the hundi. As a result, bankers and their services enjoyed widespread approbation, and their hundis were much sought-after, particularly by the English East India Company, which solicited their intercession during the long and protracted campaigns against the Marathas and the remaining ex-Mughal grandees. ⁷ Hundis were extensively used to fund the supply of goods like cotton and opium and became tradeable items in the succeeding decades. Early nineteenth-century reports of colonial officials like Richard Jenkins (Nagpur) and John Malcolm (Malwa) stressed the vibrancy of the Indian money market and the traffic in hundis that accompanied the commercial flows of internal cross-country trades from the latter decades of the eighteenth century. ⁸ Even more telling was the chronic dependence of the company on the shroffs and the absolute control that the latter exercised over the exchange business. As late as 1805, in their correspondence with the Court of Directors, the company directors reiterated that the bankers held in their hands the whole specie of the country and that their influence was so extensive that the government had no power to protect itself against their combinations. It was therefore necessary to contemplate measures that would neutralise the influence of the bankers over the exchange business by fixing the denomination and value of the coins that were in circulation.

However, as the political situation changed in favour of the company, there was a shift in the representation as well as the strength of the shroffs. As major Indian powers capitulated and effective reforms in the field of currency were pushed through, the narrative of indigenous banking changed quite perceptibly. The indictment of indigenous bankers became a major rhetorical instrument in justifying the emerging political dispensation with its apparatus of rational bureaucratic procedures and formal banking practices. This set the stage from the 1820s for a major discursive shift in the characterisation of indigenous banking. The shift was, in a sense, inevitable given the new logic that underpinned the emerging colonial economy and the resolve of the company to diminish the scope of indigenous banking operations wherever it could. Its first act was to gain greater influence in the money market and reduce the dependence on shroffs/sarrafs (money changers/bankers) for adjusting the rates of diverse currencies and on their bills of exchange for commercial and political purposes. The company was also proactive in depriving bankers of certain privileges related to claims and in reviewing the larger issue of bankruptcy in trading centres—and characterising the moneyed community as unreliable and untrustworthy in the process. This discursive sleight-of-hand was admittedly incongruous given the consensus that most hundis issued for the purpose of remittance or for financing trade and politics were rarely if ever dishonoured.

In reviewing the dense credit networks and volume of traffic supported, early colonial officials detailed the ramifications of the hundi business by coming up with rough estimates of the existing capital in circulation, and assessing the influence and political loyalty of the big sahukars or bankers and money lenders. Their observations reveal the growing impatience of the establishment to do away with diverse currencies, the multiplicity of operations by petty dealers, and the resultant confusion that characterised the money market. While there is not enough information to determine the extent to which indigenous speculative ventures absorbed the existing capital in the economy, there is evidence of the resolve of the company to review such operations, bring them under greater surveillance, and eventually segregate the emergent colonial economy from the operations of the local bankers—what would later be constituted as the bazaar.

Whether it was in Surat in 1800 or the subjugated Maratha territories after 1818, the company insisted that the moneyed classes needed to be brought under some kind of control. In concrete terms, this involved clearer legal definitions of custom and customary usages related to the declaration of insolvency and the salience of contractual agreements. As soon as Surat was annexed in 1800, the company remarked that there was general ‘neglect of agreement, even of written obligations producing a total want of confidence between man and man’. It added that bankruptcy was also wholly unattended to and on many occasions, it was a premeditated scheme to defraud creditors. ⁹ Part of this rhetoric derived from the effort to rationalise the existing system of adjudication, wherein the moribund Mughal administration was found to be arbitrary and extortionate in its apportionment of blame and penalty. Chaplin’s reports dated 5 November 1821 and 20 August 1822 emphasised how bankers as a class had suffered from the transition to British rule not only because of the commercial depression but also because they had lost older privileges of extracting money from debtors. The same report spoke of a contraction of their mercantile dealings and was echoed by Robertson, who in his report dated 10 October 1821 pointed out how bankers had suffered more than any other group. ¹⁰

These interventions—including the eventual decision to adopt a uniform silver currency and to establish a network of treasuries in every district to receive revenue—paralleled the transformation that occurred in India’s trading economy, wherein the higher echelons were dominated by Europeans, and raw-material exports like opium and cotton took the place of manufactured goods, which for the most part came from Britain. There is no doubt that this commercial revolution spearheaded by European trade generated a range of experiments in commercial organisation (agency houses and managing agencies) and banking, which in turn segregated indigenous credit operations from those of the organised European banking sector. The rationale behind European banking was undoubtedly related to the emerging colonial economy that necessitated remittances of proceeds to England as well as financing of the multilateral export trade in indigo, opium and cotton. For early banking historians like H. C. Sinha, European banking emerged out of the ‘debris of indigenous banking’ that could not immediately adapt to the structural changes which accompanied the rise of European agency houses and banks. ¹¹ Sinha’s analysis pointed to both the government’s recognition of the importance of indigenous banking operations as well as its decision to go beyond these and set up a system that could issue paper currency as well as fund export operations and remittances. The result was the emergence of a set of joint-stock banks closely aligned to the European agency houses. In the initial stages, agency houses and their financial extensions did not entirely bypass indigenous financiers, whose business remained crucial in supporting and sustaining the supply chain of commodities and in guaranteeing credit flows. Amiya Bagchi noted that in the Bank of Bengal, the khazanchee (head shroff) acted as an essential link between Indian traders and bankers on the one hand and the European board of directors on the other. ¹² However, the status of the head shroff declined over time, and when financial crises swept the European agency houses, the Indian agents were the first to suffer the consequences.

The situation was marginally different in western India, where indigenous bankers collaborated more closely with British traders and agency houses, held shares in joint-stock banking, and figured prominently in Bombay’s cotton and opium trade. It was only after the disastrous speculation in cotton of the 1860s that substantive changes came about in the structure and organisation of European banking. ¹³ Even as local financiers suffered disastrously under the impact of over-speculation by agency houses, European banks and Indian speculators, they became targets of colonial suspicion. The colonial government created a new narrative in conjunction with European merchants that indicted shroffs for financial laxity and unreliability and also described their domain of banking as unorganised and defective, despite its key role in integrating the export–import sector with that of the bazaar or inland credit transactions. The discourse did not draw on expert knowledge, nor did it draw its defence from European banking practices. On the contrary, it would appear that sloppy and speculative banking practices by Europeans in collaboration with local bankers and traders set the stage for the discourse on indigenous banking.

European Banking Experiments: Repositioning the Indian Shroff

From around the first quarter of the nineteenth century, there were repeated and insistent allusions to the shroff (indigenous banker) as an unreliable creditor who oppressed the hapless ryot on the one hand and as a speculator in the money market on the other. These accusations were projected as the underlying rationale for the provisional experiments in state-sponsored European banking that sought to pit the advantages of formal European banking over informal indigenous banking. From the very first round of banking experiments, the state’s intention was to enter the money market, to intervene in the arbitration over interest-rates that were in the hands of local bankers at the time, and to issue paper currency that could find adequate circulation. In 1789, the Chairman of the newly-floated General Bank wrote a letter to Lord Cornwallis stating that:

[T]he benefits that the publick has derived from the Establishment have long been apparent and generally admitted. By lowering the rate of interest progressively, raising the value of the company’s paper, supporting private credit, facilitating and extending commerce in prompt aids of money to the merchant and generally by opposing the whole power of its capital and weight and influence, as a barrier against the usurious oppressions of native shroffs and moneylenders, which had so long been practiced with immunity to the manifest injury of publick, and utter annihilation of private credit. ¹⁴

These observations were not entirely borne out by the actual experience of early European banking, which floundered with every commercial crisis in Bengal in the 1820s, 1830s and 1840s, caused largely by over-speculation, war, and the reduction of value of paper notes. There were regular runs in the Calcutta money market in the 1790s and thereafter, but the extreme embarrassment of European banking-houses did not produce a shift in the official discourse on indigenous banking.

From the outset, European banking was intended to go beyond the indigenous function of remittance and take up the important tasks of issuing notes or paper currency and funding foreign trade. The context for the formal European banking experiments was the expanding requirements—mostly remittance—of private European trade and commerce to England in the form of bills as well as the need to resolve the company’s expanding public debt. It was not easy to come to a consensus; the Supreme Government in Calcutta was not enthusiastic about transferring the right to issue notes to banks. In 1809, when a member of the Bombay government suggested (through their adviser, Mr Robert Rickards) the establishment of a General Bank and a Sinking Fund, the Supreme Government in Calcutta raised several objections. For the Bombay Government and Rickards, the main challenge was to muster up funds and reduce the reliance on local credit facilities—the ubiquitous bania banker who had for the greater part of the eighteenth century bankrolled the existence and expansion of the Bombay government. Rickards, from his experience in western India, also suggested that provisions be made for involving Indian shroffs in the bank, which would ‘be a great convenience to the mercantile body, who will be freed from the losses and inconveniences now suffered in exchange, and from the artifices of shroffs, (emphasis mine) and therefore, find their pecuniary intercourse with every part of British India much facilitated’. ¹⁵ C. N. Cooke—one of the most celebrated apologists for Indian banking—was not so convinced, as two decades later he noted that native investors were reluctant to invest in government stock and paper except for speculative and temporary purposes. Evidently, Cooke did not approve of this habit and suggested that because of their superior local knowledge, they looked for better investment options. Cooke believed that the consequences of this were ‘most mischievous’ both because it impacted capital availability and ‘still more in its indirect influence in preventing the formation of a spirit of emulation and enterprise’. ¹⁶

In its basic conception, European banking emphasised the elements of deposit banking, discounting bills and advancing money on tangible securities. Banks set up under this scheme included those under European agency houses, which absorbed the savings of the company’s personnel, investing them in trade and securing their remittances to England. Subsequently, banks established by a government charter—the Banks of Bengal, Bombay and Madras—followed the same protocols and practice and absorbed the company’s Indian government amongst their shareholders. The record of European banking was not especially impressive; notwithstanding the elaborate protocols for management and audit, the reckless investment in export commodities like indigo induced a series of crashes in the 1840s, affecting banks like the Union Bank. The effects were not only disproportionately borne by the Indian constituents, but the crisis also provided a context for a major overhaul, wherein the relegation of local speculation and banking operations to a lower tier became even more pronounced. Hereafter, Indian financiers not only had to compete with the Banks of Bengal, Madras and Bombay—which enjoyed greater government support in supplying temporary advances to those engaged in trade, in receiving and making all payments both at the presidencies and all over the country wherever they established agencies, and in managing government currency at an annual charge—but also deal with bad press that branded them as unreliable and usurious. Cooke made this clear when he stated that ‘It is not therefore too much to assert that sooner or later, these institutions [exchange banks] will acquire a large proportion of the Moffusil business, which for so long a period has been confined to the native bankers or shroffs’. ¹⁷ As it happened, these expectations were belied, agency houses failed, notes did not pass as legal tender, and shroffs continued to fund inland trade and reach areas where banks had no branches. This was in contrast to the malpractice that lay at the heart of the failure of banks such as the Union Bank, where there were massive irregularities in which European and Indian ledger-writers were involved. ¹⁸ The failure of the Bank of Bombay two decades later was even more catastrophic and set the stage for a sharper distinction between organised formal banking and the unorganised indigenous banking sector.

The separation between the formal sector and what Rajat Ray calls the bazaar sector was, however, far from absolute. ¹⁹ On paper, indigenous bankers attended exclusively to agricultural production, marketing of agricultural produce, and the distribution of imports in the hinterland, while European banks with limited Indian shareholding confined their activities almost entirely to the Presidency capitals, providing remittance facilities and financing export trade. In practice, indigenous bankers made use of Presidency banks to supplement their capital reserves, provided they enjoyed a good credit rating and the right to act as sureties for other borrowers from these banks. This was especially marked in Bombay and western India, where Parsi and Hindu commercial groups enjoyed substantial shares in formal banking and participated in extensive speculation. However, for the groups that enjoyed a limited degree of participation in formal European banking, the commercial crisis triggered by the fall of agency houses proved disastrous. In Bengal, it led to the complete withdrawal of indigenous business groups from business to land, and in western India, it forged new equations between indigenous capital and imperial enterprise that did not, however, spare them from the consequences of the financial crash that occurred in the wake of the American Civil War (1865–66).

It was the crisis of the Bank of Bombay during the time of the American Civil War that provided the context for the discursive production, which characterised indigenous speculative activity and banking as restrictive, reckless and resistant to rational regulation. It would therefore be instructive to briefly recapitulate the circumstances leading to the spectacular share mania and crash of the Bank of Bombay and other European enterprises associated with speculation in 1866 and to consider why it became a deciding moment in the crystallisation of the European/indigenous binary.

European banking activities in Bombay accommodated a great deal of Indian capital, especially that of Parsi businessmen, who emerged as major shareholders in a number of European banks. In 1847, Parsis were dominant shareholders in the Mercantile Bank, accounting for 39.57% of the bank’s proprietary and owning 22.48% of the equity, with Gujaratis and Indo-Europeans close behind. ²⁰ The strength of indigenous business in western India involved not just participation in mixed Indo-European ventures but also in a massive expansion of commercial agriculture (primarily cotton) and speculation in agriculture by both brokers and traders alike. Opportunities for investment expanded following the American Civil War, chiefly in urban projects floated by the Bombay administration with the Bank of Bombay and newly emerging financial entities, most of which were shell companies sponsored by European and Indian speculators. The period of heady commercial success and urban expansion coincided with the breakdown of the regulatory structure of the Bank of Bombay. Under a new constitution in 1863, the Bank of Bombay’s capital was increased to 2 million pounds sterling, and the bank was given practically unrestrained liberty to make advances on the shares of any company. All restrictions were removed against the amount that could be advanced to any one individual on any uncertain security. Admittedly, there were provisions for the Bombay government to check and audit, but as it turned out, a massive collusion between the European directors of the bank, city administrators and indigenous speculators produced a spectacular share mania and the floating of shell companies that eventually ended in total ruination. Predictably, in their depositions to the Commission of Enquiry appointed to examine the failure of the bank, European ex-directors claimed that the alterations were necessitated by existing hundi conventions. The bank’s secretary, James Blair, confessed that ‘we could get little or no business unless that system was adopted when branches were to be commenced. The Hoondee system was entirely on one name, natives would generally not trust each other’. ²¹ Due to over-speculation and reckless financial transactions, the bank went into liquidation, paving the way for a major overhaul of the business of exchange-banking.

The commissioners appointed to enquire into the causes of the bank’s colossal failure agreed that weak and unprincipled secretaries ‘under the influence of a designing native Director, Premchund Roychund’ and an absence of sound advice were to blame. ²² Mr Dickson, the Secretary and treasurer of the Bank of Bengal, forcefully suggested that the three Presidency banks be amalgamated into one, and that the business of issuing notes be entrusted to banks and not to the government. Dickson’s recommendations were rejected by the then Viceroy, but his observations are especially important as he presented a set of formal comments on indigenous banking that served to work as the basis for all later reflection and policy proposals. In Dickson’s view:

The usages, customs and habits of the people of this country, who are a nation of traffickers in money, as well as the inland exchanges, are opposed to the rapid growth of purely western customs and institutions. They must ever retain in their own hands, against all competitors, by far the largest portion of the purely banking operations in India, and legislation cannot possibly reach them. They have sufficient influence, either by active combination or passive inaction. To defeat any movement of the kind unless, indeed they find that it sub-serves their own interest. ²³

The depositions provided to the commissioners who were looking into the colossal failure of the Bank of Bombay reiterated the point that native banking was organised on different principles:

The mercantile peculiarities of India are in many respects very different from those of England, and in addition to everything which relates to the difficulties of framing a good bank charter in England, you have the difficulties of dealing with a very old, and experienced, and widely extended, and rich native mercantile community, who have been for many ages dealing with this very matter of banking, on different principles and in a different manner from the bankers of Europe. ²⁴

While many of these observations were intended to explain the lapses of bank managers and directors, they did set a template for a particular characterisation of indigenous banking that was coterminous with speculation. However, it would not do to overstate the colonial stereotyping of indigenous brokers and moneylenders. Several individual administrators took a more granular view of the changing situation, largely because the actual dynamics of the imperial trade and financial system in relation to the indigenous money market rendered the rhetoric of hermetical segregation invalid. On the ground, indigenous financiers were able to work uninterrupted in extending and consolidating their control over inland trade and finance that lay beneath the imperial edifice, outside the formal apparatus of state regulation and mediated largely by ties of kinship and caste. Indigenous commercial men were able to do so because imperial influence over the actual world of rural agricultural production was shadowy, because caste networks enabled enterprise, and also because, in many cases, the world of princes and princely states gave them a convenient base from which to launch their operations.

The interlocking system of credit connections and information that sustained a huge volume of commercial and trade transactions could not be ignored by commentators who reflected on the sustainability of credit transfers and equally on the complexities of local usage. C. N. Cooke, Deputy Secretary and Treasurer of the Bank of Bengal, who came up with an accurate classification of banking activities in 1864, extolled indigenous bankers for high standards of creditworthiness. Identifying the three categories of city sarrafs (big bankers), zilla bankers (responsible for funding agricultural production) and village mahajans (petty moneylenders), Cooke noted that each of these tiers played a critical role in sustaining the economic life of the country and fulfilling the requirements of global commerce. He emphasised that the character of bankers had been much maligned and that they were, in fact, men of commercial morality who very rarely dishonoured their bills of exchange, the hundis. They did not adopt forms or protocols that were familiar to the English, but that did not make their business any less secure. ²⁵

Political stability was a major consideration for business. Indigenous histories refer to benign conditions after the Mutiny of 1857 and also to the support of princely states, which gave them a useful springboard to expand their operations. Most of the families writing their histories in the 1920s claimed older origins; their profits were linked to the trade in cotton and opium as well as to investment in government bonds and treasury bills, indicating their adaptation to the new regime that involved brokerage and the marketing of produce on a commission basis in the wake of colonial trade that spread after 1857, connecting Calcutta, Bombay and Madras with the huge hinterlands of northern, central and western India. They soon occupied what Ritu Birla refers to as the sphere of vernacular capitalism operating within notions of trust, reciprocity and hierarchy, which was perceived by the colonial state to be part of a cultural domain wherein the indigenous unorganised banking sector had varied, personalised and multiregional conventions that sustained a very extensive negotiability. ²⁶

Ironically, it was precisely around the negotiability of the sarrafi financial instruments that the colonial state chose to disqualify indigenous banking. Was this because the indigenous sector grew exponentially and became impossible to regulate, especially in relation to quasi-negotiable financial instruments? Was it to do with the growing concern of the state to protect the interests of agriculturists and liberate them from the control of the moneylender? Was it connected to the wildly varying interest rates in the bazaar as compared with banks, which the state wished to reconcile but could not? Before we speculate and consider the actual material context in which the debate on indigenous banking was framed, let us try and reconstruct the dense web of credit and trade relations that constituted the scaffolding for the imperial economy as well as for that of primary agricultural production and its distribution.

Money Flows, Credit and Commodities in the High Noon of Imperialism

The material context for an exponential increase in the volume of inland trade and traffic was, as Tirthankar Roy suggests, a massive expansion of commercial agriculture intended for both internal and external trade between 1870 and 1930. ²⁷ This produced a huge demand for credit to sustain both cultivators and distributors—key agents in this agricultural and commercial expansion—which was largely met by the indigenous informal sector constituted by wholesale traders, arhatiyas or commission agents, and bankers, who extended credit to cultivators and financed inland trade through a complex web of credit notes and railway receipts. They emerged as the most influential class of businessmen because they controlled the flows of money and produce in the market towns of the interior. The business of arhats, that is, facilitating the transaction between the producer and the final buyer, represented a new type of brokerage for they guaranteed the hundis or credit instruments through which trade transactions were conducted between multiple levels of buyers and sellers. The construction of railways brought greater economic integration, and consequently, the commission agencies’ business grew bigger, enabling them to connect the beparis (small traders who brought their produce to market stores) to the export–import merchants in the presidency.

While the colonial state and European traders acknowledged that indigenous bankers played a key role in the movement of commodities across India, the formal banking sector remained reluctant to treat indigenous instruments at par with their European counterparts. The stumbling block seems to have been the endorsement of the hundi, for it was difficult to define it with any precision or even bring it under a common legal framework. In practice, hundis were the chief instruments of inland exchange. Rajat Ray argues that the actual mechanics of inland trade demonstrated entirely different levels of credit mobility and exchange transactions. Hundis did not operate in rural markets at the bottom of the chain, as peasants secured hard cash from arhats or forward traders in the market towns, then transported their produce to market towns and inland centres via the hundi and transportation network, which was operated by shroffs and arhats. A small proportion of the produce dispatched by rail was intended for export and entered, in the process, another world, ‘leaving the ambit of the bazar’, which connected the bepari to the market town and thereon to the larger market hub where commission agents owned and rented warehouses. Commission agency and banking were closely allied activities—the arhat (commission agent) borrowed money from shroffs (bankers); the latter were seen to be more accommodating than formal banks because they demanded only a marginal amount of the good pledged and were content to have the key to the warehouse, unlike banks, which insisted on putting their own locks on the warehouse doors. Arhats sent goods to other arhats in larger towns, and payments were made through darshani hundis (bills of exchange payable on sight or with grace) supported by railway receipts.

Tirthankar Roy describes the manner in which these transactions associated with the export trade worked on the ground. In the harvest season, the merchant or trading agent for an Indian or European firm would buy goods by borrowing from a local banker who had connections with a metropolitan banker. The local agent would then ship the commodity in question by rail to the principal merchant in Bombay. The Bombay firm would ask a local banker to pay the agent through a chithi (handwritten note). On delivering the rail receipt to the firm, the Bombay firm would receive a draft, which was in turn sent to the local banker. Trading firms like the Ralli Brothers made use of bankers’ bills, but Roy argues that bills were rarely used in banker-to-trader transactions.

The indigenous banker performed a critical function in the business of distributing manufactured goods as well. A cloth-merchant had several options depending on his assets. A petty trader could obtain a loan from a moneylender, buy the cloth, sell it and pay off creditors. A larger merchant usually deposited money with arhatiyas (commission agents) in big centres, who functioned as bankers, granted credit in their books, discounted hundis and purchased goods to consign at a later date. These men enjoyed substantial profits and generally used their own money, but when in need, they raised funds by endorsing customers’ hundis and rediscounting them with joint-stock banks. Thus, although European exchange banks (Bengal, Bombay and Calcutta) and private joint-stock banks were not directly invested in the movement of inland commodities, they came forward to discount the hundis of certain shroffs whose credit rating was acknowledged and in the process maintained a link with inland trade and credit movements.

From the 1880s, the state began to consider the possibilities of integrating the indigenous money market with the formal sector due to growing concerns about rural indebtedness, the extraordinary fluctuations in the bazaar rates of interest, and accelerating savings and investment rates, as well as a desire to promote the future absorption of silver as coin and partly—even if desultorily—in an attempt to align indigenous operations with the larger gamut of European banking operations in the subcontinent. The fluctuations in the availability of credit, the fact that bankers preferred to keep capital idle for several months, and that small traders did not transact by means of unconditional negotiable instruments were challenges that the state wished to address. It was in this context that the hundi became a major issue for discussion. This was also a time when Anglo-Indian courts found themselves grappling with a rise in hundi-related disputes, which called their status as an unconditional financial instrument into question.

Defining Hundis, Negotiating Custom

In the seventeenth century, hundis were seen by Europeans as marvellous specimens of trust that required no seal or witness. ²⁸ They were primarily a means to secure advances: a merchant needing money drew a hundi on his agent, firm or someone with whom arrangement was made beforehand. The premium or discount attached to the drawing and discounting of hundis depended on the stream of remittances and reverse remittances. European traders used these instruments extensively in the eighteenth century, although it was only in the nineteenth century that their definition became a matter of close deliberation and scrutiny. Eventually, the shahjogi hundis (payable to a respectable merchant or shah, and transferable by delivery but not payable to the bearer) replaced mudatti (payable after a specified period of time) and darshani (payable on sight) hundis, because the prior enabled the lender to get his money back if there were complications, and unlike other hundis could be sold. A shah presenting a shahjogi hundi for payment to the drawee meant that he requested the drawee to pay and implicitly agreed to indemnify him against the consequences of payment, but this was not always easy to establish and the cases that came up exposed the intricacies of the bazaar transactions. Forged endorsements created complications and as Justice Morgan impatiently asserted in 1865, ‘these hoondies are in fact highly inconvenient to the rest of the world’. ²⁹

In 1869, in the case of Davlatram Shriram v. Bulakidas Khemchand, the drawees who had made payments to a shah under a forged endorsement sued the shah for repayment of the money, which generated a detailed exposition of the shahjogi hundi. In this case, the amount of the hundi was said to have been deposited into the drawer’s firm by Kunyalal Joharimalprasad. The hundi stated that it was payable to a shah and carried an endorsement to the effect that the hundi had been sold by Kunyalal Joharimalprasad to Khemchand Mulchand, the defendant, who by virtue of this endorsement became the shah to whom the hundi was payable. However, in this case, the drawer’s signature had been forged. Money stated to have been deposited with the drawer was never in fact deposited. The forgery was proved, and the defendant was held to be the bona fide endorsee for full value. The question that Justice Arnold had to consider was whether or not, in such cases—where the drawee had paid the shah and the hundi turned out to be a forgery—the shah was liable to refund the amount received from the drawee. Arnold maintained that:

[T]he drawee of the hundi, in accepting and paying it looks mainly to the shah as responsible in case of anything afterwards going wrong with the hundi; and … relies on the solvency and respectability of the shah as one of the principal grounds in inducing him to make payment without further inquiry.… Such [shahjogi] hundis differ from bills of exchange in one very material circumstance, amongst others, that, as a general rule, the acceptance of the drawee is not written across them.… It may be added also, as a general rule, that hundis are very frequently not presented for acceptance before they are presented for payment. ³⁰

In 1894, the liability of the drawee was called into question in the case of Ganeshdas Ramnarayan v. Lakshmidas Narayan, wherein the drawees had paid the holder of a hundi, who in fact had no title to it. The Bombay High Court insisted that while the person to whom payment had been made was not a shah, the drawees ‘could not escape liability’ on that ground because the appellants failed to prove that there was any custom relating to a shahjogi hundi, which absolved the drawee from paying the amount of the hundi to a person having no title from liability in conversion to the true owner. ³¹ In 1914, in the case of Bansidhar Lakshminarayan v. Jwalaprasad Gayaprasad, the former drew attention to several lapses and anomalies in the railway receipt, which had accompanied hundis worth ₹3000. ³² It was pointed out that while Bansidhar Lakshminarayan had paid the amount of the shahjogi hundis, the railway receipt for the supply of linseed oil turned out to be a forgery, and had never been issued. At this point, the plaintiffs contended that their interests needed protection and demanded a reversal of the payment. They argued that according to well-established custom among shroffs, the shah who obtains payment of a hundi that turns out to be forged is required to refund the amount of the hundi with interest, unless he produces the actual drawer or the person who committed the fraud. ³³ The court itself took the view that the shah only guaranteed the genuineness of the shahjogi hundi and was not a guarantor of solvency. The case emphasised the fact that the shahjogi hundi differed from an ordinary hundi in two aspects: first, it did not need to be presented for acceptance, the acceptance of the drawee was not necessary and need not be written across the hundi; and second, the holder was relieved from liability if he produced the forger.

For the administration handling litigation, it was not easy to reconcile the differences between bearer bills and shahjogi hundis—differences that were necessarily expressed in terms of Hindu customs and customary law. While L. C. Jain argued that hundis were rarely dishonoured, and bankers and shroffs insisted before the Banking Enquiry Commissions that hundis were the lifeline of commerce and credit transactions, numerous cases evince the informality of practice. In Champaklal Gopaldas v. Keshrichand Maganlal, wherein the hundi did not indicate that payment was to be made to a shah, the hundi was examined, the endorsements on the back were reviewed with great care by the court, and the final conclusion arrived at was that the hundi was in fact a shahjogi hundi which was made payable by a shah—a man of substance and not of shadow—who could be called upon to reimburse the amount which he had received from the drawee. What was special about the shahjogi hundi was that it provided the guarantee of a respectable merchant who could be proceeded against immediately by the drawee in case he or his parties became the holder through fraud. These were not like bearer bills and there was nothing in Hindu law that supported an equivalence. The judge came out with this elaborate definition:

That a ‘Shajog’ hundi in its inception is a hundi which passes from hand to hand by delivery and requires no indorsement. The name of the depositor is mentioned in the body of the hundi, but there is no direction in the hundi that the amount is to be paid either to the depositor or to his indorsee. Indeed, the body of the hundi requires that the amount be paid to a Shah. It contemplates the hundi passing from hand to hand until it reaches a Shah who, after making due enquiries to secure himself, would present it to the drawee for acceptance or for payment. The ‘Shajog’ hundis which appear in the cases I have reviewed bear an indorsement to the effect that the depositor has sold the hundi to a person named therein but it is significant that the indorsement does not bear the signature of the depositor nor does it give a direction to the drawee that the amount is to be paid to the order of anybody. It merely recites the fact that the depositor has sold the hundi. I am aware of no provision of the Hindu law whereby any sale is to be evidenced by writing. The ancient systems of law lay stress upon delivery of possession rather than a writing as evidence of sale. Absence of an indorsement on the hundi would not, in my opinion, affect its validity if it is a ‘Shajog’ hundi. But a ‘Shajog’ hundi although in its inception it is one which passes by delivery without any indorsement yet it may at any moment be restricted by being specially indorsed. Where any such restriction appears on the face of the hundi then that restriction applies to it and it ceases to be a bearer hundi which can pass from hand to hand. Anybody taking it after such indorsement has to comply with the requisitions as they appear on the face of the hundi and has to examine the title of the holder in the light of such indorsements. ³⁴

This statement indicates the extent to which hundis were used to finance long-distance trade and attests to myriad transactions in hundis as well as the salience shahjogi hundis commanded in this period. Most of the transactions seem to have been made through these bills, even though they could not be accommodated under the Negotiable Instruments Act (1881). Shroffs clamoured for an amendment of the act and spoke of the need for better regulation even as they insisted on the advantages of customary practices. The shahjogi hundi was valued as it rendered compulsory the duty of the payer to ensure that the payee was a respectable person before payment, so that if the hundi turned out to be stolen, lost or to contain a forged endorsement, the payer might be able to demand a refund from the shah to whom the money had erroneously been paid.

These cases accent the complexities of defining hundis and the multiplicity of such bills, which the colonial authorities found challenging to comprehend. ³⁵ Predictably, the legal discourse on the subject hinged on the lack of equivalence between a hundi and a conventional English trade bill. However, a number of landmark judgements by counsels helped standardise custom.

The State and Indigenous Banking: Crafting Official Narratives

The 1880s saw a renewed interest in exploring the subject of indigenous banking. The Institute of Bankers in the UK joined the discourse largely in response to the public debate on variations in interest rates and the divergence between the Imperial Bank rate and the informal bazaar rate. On 18 May 1881, Richard Temple delivered an address on the general monetary practice amongst natives of India and included an account of such practices amongst the natives that had a banking character. The rationale behind Temple’s address derived from the compulsion to bring money into circulation and to figure out how Indian banking could be formalised and aligned to European standards. Like many of his contemporaries, Temple was struck by the fact that there was no deposit banking to speak of and yet native bankers did ‘enormous business in advancing money in large and small sums upon security of landed property’. He estimated that no less than 3.5 million adults were engaged in commerce in British India, of whom 118,000 were bankers proper, 11,000 were moneylenders and 21,000 money changers. Temple also testified to the once-excellent character of senior bankers with high credit and status and maintained that it was with British rule that they had entered into reckless speculation, and that the situation warranted greater legal intervention, the extension of formal savings banks, extension of money orders, and a system of life assurance. Temple emphasised the ruthlessness of the moneylender and the vulnerability of the agriculturist, whose interests the state wished to protect. His views coincided with some of the official attitudes towards agricultural lending in late colonial India, where there was a concerted effort to protect borrowers. Legislative measures did not, however, pertain to the sphere of the hundi and the domain of marketing agricultural production.

Temple used the same occasion to speak on hundis, the characteristic bill of exchange of the Indian banking system. He concluded that European banking would not be able to penetrate into this domain. ³⁶ What is striking about the range of responses to Temple’s presentation is the consensus that the cotton crash of the 1860s was a turning point that destroyed the credit and reputation of the Indian bankers. John Smith mentioned that when he was in India in 1862, European ideas of bankruptcy were unknown to Indians, and that the high credit of natives was accepted as a given and the dishonouring of hundis was practically unknown, which was clearly an exaggeration. William Fowler, on the other hand, contrasted European and Indian banking by noting that ‘the banks of India are not banks, in our sense of the word, banking at all’. ³⁷ In either case, the hundis were seen as exceptional instruments.

In 1890, Andrew MacDonald, a fellow of the Institute of Bankers, noted that native banking was a misnomer, for it accommodated myriad kinds of transactions and agents. He referred to the ‘seths and sarrafs’ as first-class bankers who dominated the business of exchange. They had extensive establishments managed by munims (subordinate managers) and gomasthas (agents) who were frequently transferred, made all kinds of advances, and lent money on security. Many of the latter were very affluent and influential—MacDonald mentioned Bansilal Aberchand, who had sprawling networks all across India—and were key to the marketing of exports and agricultural produce. ³⁸ He distinguished these men from Marwari moneylenders, the most ‘notorious exacting race in India’ and the ‘curse of the Koonbi (agricultural class)’. He also pointed out how the idea of native banking was chiefly confined to the issuing and discounting of hundis, money lending and money changing. There was no deposit banking of any kind and even the bill business was not comparable to the European case. He drew attention to both form and function: ‘our bills of exchange are written lengthwise along the usual forms provided. On the other hand, the native hundi is written transversely, or across the paper’. Hundis were of moderate length and not always decipherable, and all carried a stamp. MacDonald adhered to the standard conventions familiar to his European counterparts, and the observations that made up the discourse were schizophrenic, acknowledging the range and depth of hundi functions but unfavourably highlighting their stark contrast with the features and functions of European banking. The indigenous merchant remained, at the core, a moneylender and an irresponsible speculator whose intention was to keep capital idle for months. This concern escalated in the succeeding decades when the question of floating a central bank became urgent, which prompted more detailed reflections on the phenomenon by Europeans and Indians alike. It was in this context that bankers themselves began to float their histories, and communities came up with primers for better regulation of their practices, especially that of the hundi business and the calculation of interest rates. It is worth mentioning here that specific categories of hundis were excluded from the purview of the legal framework guaranteed by the Negotiable Instruments Act.

Defining and reconciling the hundi therefore lay at the core of the problem in defining indigenous banking. Besides the practical consideration of dealing with hundi disputes, how were these to be brought under some form of uniformity? As we have already seen, forgeries, forged endorsements and multiple endorsements that enabled hundis to circulate and re-circulate created confusion for the law. Although a key pillar of the bazaar, the hundi was unlike an English bill—not unconditional. Under the English practice, a bill was drawn by an exporter upon a certain bank, which—acting under instructions from the importer’s bank—accepted such bills provided they were drawn in accordance with the terms of the credit. These bills bore the evidence that they were drawn in good faith against actual goods duly dispatched from one trade centre to the other. In the case of hundis, there was nothing to show that they were drawn against commercial goods; they were more like cheques. To confound the situation further, there were many types of hundis, and here lay the rub. How were these to be reconciled in issues of disputation and adjudication? There were darshani hundis (payable on sight), mudatti hundis (payable after a stipulated period) and shahjogi hundis, the peculiarities of which this paper has already alluded to. There were variations in forms too. Hundis, like premodern letters, carried the name of god and religious salutations, and the names of the drawer and drawee on the obverse and reverse, respectively. They could be discounted and re-discounted several times, and the endorser of the hundi was liable to the holder for its payment, though he could make a special endorsement called sira to the effect that if the hundi was not cashed by the drawee, it could be presented for payment to a specific person. This provision enabled its author to escape from liability unless the payment was refused by both the drawee and the person intended to take the drawee’s place. These variations and the recourse to custom made it difficult for the colonial state to treat the instrument at par with other bills under the Negotiable Instruments Act of 1881, which formalised the distinction between indigenous and formal banking.

Legal articulations went a long way in formalising the European discourse on indigenous banking, especially around the early decades of the twentieth century, when the question of rural finance and the limited advance made by formal joint-stock banking assumed greater visibility. Imperial administrators and apologists were concerned by the wild variations in interest rates and how these impacted what was clearly a segmented money market, and they participated in a broader discussion on the establishment of a Reserve Bank. In 1911, Reginald Murray advised joint-stock banks to achieve greater presence in the rural hinterland to make cheaper finance available to the agriculturists, views that were taken up with greater enthusiasm by M. M. S. Gubbay, the general manager of the P&O Banking Corporation, who drew attention to the lack of branch banking, and the great disparity between rates that banks could offer and what the bazaar could afford to pay. Gubbay mentioned how it was impossible to loosen the hold of the indigenous banker; he was present everywhere, he worked with little security, and was in intimate touch with his clients. Gubbay also identified the man of substance, the seth—the approved shroff on the banker’s lists—who provided the bridge and endorsed the traders’ bills. The shroff’s business lay in investing his funds in hundis, and because banks did not compete with him for purchasing hundis, the bazaar rate had little relation to the bank rate. Gubbay was not especially hopeful about the prospects of a central banking system to be superimposed on the system of indigenous banking, partly because securities were absent in native banking and partly because it was difficult to integrate the activities of native banking with joint-stock banks. ³⁹ In 1927, he reiterated thus the contrast between the sectors of formal and informal banking:

A differentiation is professedly made between paper drawn to finance commercial transactions, and ‘hand hundies’, which are pure finance paper: but as in neither case are any documents tendered to the Banks in support of the paper, the differentiation can only rest on general assumptions. In practice the real basis is the personal standing of the Shroff, supplemented by such knowledge of his general transactions and procedure as can be ascertained by investigation. Some scrutiny is applied by the Banks to the names of the makers of the paper which the Shroff endorses: the frequency of the same names may, and does, cause Banks to reject paper made by such parties, even though it may bear the endorsing Shroff’s signature. The functions of the endorsing shroff, it should be noted, do not resemble those which, according to European banking practice, are associated with the accepting merchant banker. The business of the endorsing Shroff is the investment of funds, whether his own, or deposited with him by other parties, in hoondees. So long as he can carry these hoondees unaided by Bank funds he will do so. He looks for his profit to the difference he can secure between the rates at which he can borrow funds, and the rates at which he can employ them in hoondees. As Banks do not compete with him for the purchase of traders’ hoondees, the hoondi rate in the bazaar has little relation to Bank rate, and is determined by the Shroffs themselves. When seasonal movements of produce, or of imported goods, occur so as to cause the supply of hoondees to increase to a point beyond the capacity of the Shroffs to finance them, resort is had to the Banks: and endorsing Shroff’s limits are then fully utilized. ⁴⁰

Several discussants responded by pointing out that Indians had no practice of deposit-banking, that the majority of the natives were prone to hoarding, and that their bills could not be compliant with European trade bills. The one voice of dissent was that of A. Gopalji, who sarcastically noted that Indians were being lampooned and recommended that they read a tract on ‘Hindu superiority’ dealing with the subject of credit and that Indians should not blindly ape their masters and take on everything that was proposed. He reminded his audience that the banking system in India was regulated more in the interests of London than of India and that hoarding habits were a crucial saving-mechanism without which India would be wiped out. ⁴¹

The Chairman, on the other hand, spoke about the merits of an integrating mechanism, noting that ‘the native trading and banking community would not be slow in complying with the requirements of the big joint-stock banks’. ⁴² According to him, the shroff could be a valuable nucleus for the establishment of a genuine money market in India if he received assurance that joint-stock banks were ready to lend on or discount true commercial bills. If the Reserve Bank of India was always ready to discount them, there was no reason to doubt that the shroff would not seek to acquire such bills wherever they could be obtained. The same remarks, of course, also applied to the small native bankers. It would be through them that the influence of the Reserve Bank would reach the bazaars, for it was clearly to the advantage of the shroff and the small banker to borrow money on the security of good bills at the more favourable rates of the joint-stock banks rather than to pay high rates for depositing money in the bazaar.

Indian commentators and actual practitioners shared their views on the legal status and benefits of hundis when the Central and Provincial Banking Enquiry Commissions were instituted, wherein opinions were solicited from indigenous bankers. This was also when a series of community histories and primers in the vernacular were composed. In all these instances, hundis were seen as the cornerstone of indigenous banking practice and it was emphasised that trust—not law—was the key to understanding the resilience of indigenous banking.

The Banking Enquiry Commissions

In 1929, the Government of India sanctioned a comprehensive survey of banking throughout India to accomplish three goals: set up provincial committees to study agricultural credit, provide credit to small-scale industries, and finance internal trade; an all-India central committee to fill in the gaps in financing small industry and rural credit; and consider banking education and set up a group of foreign experts to work with the aforementioned committees. ⁴³ These committees undertook extensive enquiries of individual bankers and associations to assess the extent of indigenous banking operations and to find redressal to their grievances and solicit opinions about the overhauling of the banking system and the establishment of a Reserve Bank in place of the Imperial Bank (which was the result of an amalgamation of the three Presidency banks). By this time, shroffs had either consolidated their position as major financiers of textile production in western India or as agents in the marketing and distribution of agricultural goods within the country. Many of them had organised themselves in associations like the Ahmedabad Shroffs Association and the Bombay Shroffs Association to express their views to the government. All of them emphasised the centrality of bankers and their instruments in the financing of internal trade and pressed for greater accommodation and alignment with the formal banking apparatus. The utility of indigenous banking was vocally advertised. Jaisinghbhai Purushottam Das, President of the Ahmedabad Shroffs Association, mentioned how shroffs worked economically, combined commission-agency with banking, and worked with fixed rates for borrowing amongst their members. He estimated that the actual amount of capital invested by them was probably several times the capital of the Imperial Bank, even if they did not enjoy the same status and recognition. They conducted business as a public good and did not enjoy the respect they deserved. Das also pointed out how relations had deteriorated over the last decade and insisted that hundis needed greater protection under the law. Accordingly, he requested that the Negotiable Instruments Act be amended to recognise hundis as cheques. In the interviews that followed with other presidents of indigenous associations, the same concerns were repeated, most notably a reluctance to make accounts and balance-sheets public. They maintained that there were few cases of default and failures and that the vitality of the shroffs’ business was because of their mutual cooperation and reciprocity—they helped one another, and this was enough guarantee. ⁴⁴

Manmohandas Ramji was even more explicit in his critique of the Imperial Bank and the treatment accorded to Indian merchants. The Imperial Bank did not stand any competition from any joint-stock bank in India and enjoyed favourable treatment from the government. He insisted that the indigenous bankers were treated shabbily and seen as resistant to regulation, which in reality smacked of prejudice. ⁴⁵ Chhotalal Morarji Kothary painted an idyllic picture of indigenous banking in the past, noting that with the advent of modern banks, and

with the revolution in our social structure to the influence of western methods of individualism, the indigenous banker fell upon evil days; and now after nearly a century of ruthless competition, when the life has almost been strangled out of the indigenous banking system, proposals are being invited for rejuvenating it and putting life into a corpse. If one may say so, the corpse has almost been cremated, and a commission has now been appointed to gather together the ashes and to administer medicine to them with a view to bring them back to life. ⁴⁶

His suggestions included measures to encourage pooling of resources by indigenous bankers and to connect with the central money market and provincial capitals through the Reserve Bank.

Trust, care and a willingness to operate under low overhead costs were signalled as the principal advantages enjoyed by the shroffs. They knew their customers intimately, extended timely support and saw no dichotomy between the mode of their operations and the larger public good they sought to uphold. The Bombay Shroffs Association even argued that the advent of modern banking had increased their importance and highlighted the relative advantages they enjoyed over their European counterparts: they worked with fewer overheads, had a simple and efficient accounting system, maintained a competent and trained staff, and had excellent relations with one another. And yet, in spite of these assets, they enjoyed little legal protection as their status was not recognised to be at par with joint-stock banks. They reposed their faith in custom while pressing for legal sanctions, seeing no contradiction in this position, for it was hoped that the law could clarify the ambiguities of practice. The association also raised the question of shahjogi hundis, saying that an amended act had to define who the shah was:

Formerly when villages were small, it was easy to say who is a shah, but in a city like Bombay, when a man sets up an office and calls himself a shah, there was no reason why we should not believe him to be a shah, and the hundi must be paid to him, but when the hundi turns out to be false and even though we paid to the shah, the usage as it stands, refuses to believe that it has been paid to a shah, and the payer ultimately suffers. I say that if this shahjogi hundi is to be retained, steps should be taken to define a shah and there should be an accredited organization in Bombay, and the membership of that organization should be made a test of the shah. In old times, the practice of doing hundi business was confined to real shroffs. Nowadays, even a shoe maker can issue hundis to his Bombay firm. ⁴⁷

The association demanded a change of heart towards shroffs. It pointed out ‘we are being treated as aliens in our own country. When we approach them [the Imperial Bank], there is no attempt made even to understand us, and we are denied even elementary facilities, which are being showered on the exporting firms’. ⁴⁸ Language was also a difficulty since shroffs could not express themselves with facility in English, but the real issue was respectability. ⁴⁹

The responses and depositions of the indigenous commercial notables were simultaneously mirrored in the histories of indigenous banking and of business communities as well as primers that were published in the 1920s and 1930s in the shadow of the Enquiry Commissions. It is tempting to see in this exercise the changing priorities of the bankers and banking communities—many of whom were beginning to respond to nationalist politics—and to grab hold of new opportunities emerging in a period of transition. Consequently, there were strong polemical elements in some of these histories, along with a resolute commitment to the ideals of improvement.

Indigenous Histories of Indigenous Banking

In his 1934 tract on Indian banking dedicated to the Raja of Jaipur, B. K. Bhargava noted the contempt to which the native banker was subjected in Gubbay’s Indigenous Indian banking. Determined to liberate the Indian banker from the discourse that portrayed him as a usurious moneylender, Bhargava produced a comprehensive account of Indian banking, paying special attention to hundis that were in common circulation. His description of these hundis stressed the centrality of trust in banking transactions; the shahjogi hundi, for example, was a bill payable to the order of the shah and was not transferable by mere delivery and had to be negotiated by endorsement. The drawee was responsible for ascertaining the reputation of the shah before making payment of a shahjogi hundi to the holder of the bill. If there was any question of forgery, the drawee had to immediately communicate it to the shah, who could then claim a refund from the last holder. Bhargava reiterated the intercession of the shah as a superior arbiter who guaranteed the smoothness of transactions and argued that the usages were standardised and not subject to wilful alterations. Each kind of hundi carried very specific terms that were scrupulously adhered to, proof of the social contract that underscored indigenous banking. Bhargava stressed the great confidence reposed by the trading and political system on the hundis and how it would be unfair to dismiss all indigenous banking as petty usury. ⁵⁰

In 1929, L. C. Jain had taken a more circumspect view and focused on making sense of the hundi’s variations and on restoring some form of equivalence with the trade bill. His concern was similarly to exonerate the indigenous moneylender, draw attention to the distinction between a moneylender and a banker, and assess the defects in the banking system. Jain was self-conscious in his approach, as he was aware of the opacity of the archive, not being able to access the account books of local bankers. He adopted a sociological approach in his analysis of banking castes and communities while remaining alert to the functions that bankers performed. He conceded that Indian bankers did not receive deposits and did not use cheques. Indigenous bankers had a diverse portfolio and engaged in a series of activities feeding trade and industry. Loans accounted for a major part of their business and were extended by means of written promissory notes, but what was crucial to note was the centrality of trust in all transactions. Hundis were thus governed by time-honoured custom and local usage and only where no specific customs were applicable were they treated as bills of exchange, which could be accommodated under a legal framework like that of the Negotiable Instruments Act. Jain acknowledged that the hundi as an instrument of credit to procure advance or send remittance was not like an English bill of exchange, wherein a bill is drawn by an exporter upon a certain bank which acting under instructions from the importer’s bank accepts such bills, provided they are drawn in accordance with the terms of the credit. Hundis could not gain acceptance by joint-stock banks because there was nothing to show that they were drawn against commercial goods, although in practice banks insisted upon the endorsement of well-known bankers before dealing in small traders’ hundis. ⁵¹

Jain’s history celebrated the ubiquity of the hundi and the fact that they were rarely dishonoured. When a hundi was invalidated with the drawee refusing to accept it, the case was sent to an indigenous bankers’ association that returned the hundi to the drawer, who had to pay special charges. Jain also appraised the sense of responsibility that bankers had towards their clients and the extraordinary risks they took, asserting the need to counter the abusive stories about the lenders. He also highlighted the disproportionate presence of indigenous banking in the financial life of a country whose masses did not engage with joint-stock banks, and proposed that indigenous banking be brought in synch with joint-stock banking.

Vernacular histories of banking communities and practices such as the Marwari Jati ka Itihas (History of the Marwaris), the Oswal Jati ka Itihas (History of the Oswal community) and the Bharatiya Vyapariyon ka Itihas (History of India’s traders) followed a different tack. ⁵² These histories fell into two categories: community histories (Oswals, Agrawals, Marwaris and Maheshwaris) celebrating their place in the history of India and asserting their key social and commercial roles, written for the most part in Hindi; and manuals, digests and tracts that referred to practices, commercial usage and customs, written for the most part in Gujarati. In both cases, the underlying rationale was to celebrate the social and commercial achievements of the community, to stress the centrality of the hundi business in the safeguarding of social harmony, and to take steps to stabilise the hundi to ensure its equivalence and negotiability with the modern bank bill. Community histories were collective projects and resembled directories of individuals, families and firms that had spread across the length and breadth of the subcontinent. Thus, the Oswal jati ka itihas predictably celebrated the Oswal community’s origins and spoke of their close links with religious elders, with the ruling state including the British Residency, and with the emerging nationalist organisations. There were more general business histories like the Bharatiya Vyapariyon ka parichay (Introduction to India’s trade and traders) or Balchandra Modi’s Bharat ke itihas mein Marwadi jati ka sthan (The place of Marwaris in the history of India) which emphasised the long-term connections with princely states in central and western India as well as with the British power that enabled them to capitalise on the emerging trades of distribution of opium, piece goods and agricultural produce. These histories emphasised the importance of both individual virtue and a familial safety net in individual capital accumulation and enterprise, highlighting the personal integrity of their protagonists as well as timely family support and the boundless energy to think big. Business families that featured in the community histories inevitably referenced their ability to take risks, diversify and remain committed to family virtues. ⁵³

Reading these histories gives us a very close view of the actual proliferation of indigenous business, of agencies, of guarantee-brokerage forms, of hundi shops spread over the entire subcontinent, and of the pragmatic approach they adopted towards the ruling government, as well as the changes that came with Gandhi’s call to swadeshi. Additionally, they speak of the forward-looking vision of these communities, who were entertaining the possibility of emerging as future financial leaders. They demonstrated a strong tendency to project business communities and their elders as spokespersons for commerce as a public good, jettisoning the older image of the self-regulated merchant retreating behind his own caste-guild. Virtually, all these histories expressed their disenchantment with the formal banking sector that had resisted a reasonable alliance with indigenous banking. The new vernacular histories thus indexed the social reform profile of the bankers and merchant notables of the various communities in deploying their capital in educational institutions and philanthropy, even while reiterating their commitment to religious and spiritual life. They also highlighted a tacit display of the financial strength that accompanied command over a diverse portfolio. In many ways, these histories were histories of great men, who stepped forward as the financial backbone of the community and on whose shoulders the economic life of the country rested.

The Marwari histories by and large foregrounded the capability of the community to work hundis efficiently, which not only ensured their presence in every nook and corner of the subcontinent but also embodied their intimate understanding of the market. As Bhimsen Kedia put it in Bharat mein Marwadi Samaj (The Marwaris in India), sarrafs commanded intimate knowledge of the market and respected its ethics. ⁵⁴ Decades later, Balchandra Modi went a step further as he eulogised sarrafi (banking) as a crucial device to develop social harmony. Interest and commission agency were powerful instruments as they persuaded men to try their luck no matter what their social standing was. Unlike modern banks, sarrafi did not demand security and was prepared to finance a trader if his record of commercial transactions was impeccable, thereby fostering the values in cultivating and consolidating trust.

In Gujarati primers, manual, digests and histories composed in the closing decades of the nineteenth century, we find an active and critical engagement with the project of standardising hundis which tackled the apparent lacunae in banking practices and in the rationale behind the calculation of interest. Additionally, associations in Ahmedabad and Cutch extensively discussed the need to stabilise hundis to instil confidence and build the social profile of the community. It is therefore useful to examine tracts like the Vyajguru Hundi Shikshak (Primer for interest calculation and hundis) and the Vilatni Hundi na Hisab Ganwani chopdi (Book for calculating hundis), as well as digests and trade manuals from Cutch, to track the new urgency that business communities experienced in re-scripting their self-image. ⁵⁵

The Vyajguru Hundi Shikkshak ane Nitya Karma (written in Gujarati, s.d., but apparently c. 1919) comprised a description of hundis, counting methods, calculating interest and maintaining ledgers. It highlighted the importance of maintaining the good of the collective and arriving at a consensus, and informed the readers how during periods of boom, when there was a shortage of money, all parties concerned arrived at an informal agreement about the rate of interest. It also tacitly endorsed existing conventions, for instance, the meticulous details about how many boxes to fill while writing ledgers. It probably did so partly in anticipation of the criticism that indigenous banking would face from the Enquiry Commissions about the extreme informality of conventions. The details it provided were intended to illustrate how scrupulously banking accounts were maintained and how these were standardised. The primer also mentioned the setting up of a new school called Surat Saraffi that was meant to commence around February 1920, which would offer a three-month accountancy course to teach pakka (regular) accounts. Those with greater experience and enthusiasm were also promised expertise in English methods of book-keeping. The primer also called readers’ attention to the ways in which the writing of a hundi could be streamlined.

The Vilatni Hundi na Hisab Ganwani chopdi (A book to calculate the account of Hundi) on the other hand emphasised the intersections between bank and bazaar rates of interest and came up with tables of calculations and charges so as to validate their operations and secure their place in the reforms being contemplated. ⁵⁶ The primer, Vyaj Guru, also mentioned that mudatti hundis were no longer being used as they were subject to stamp duty. It also provided tips to commission agents to maintain a hundi vahi (hundi book) to facilitate the business, which would help them track the hundis they received from other towns, exhorted them to keep specific notes about hundi details and even set interesting sample questions for aspiring bankers that tested their ability to fill hundi boxes and calculate interest. ⁵⁷

A similar project was underway in Cutch as early as 1885, when the Digest of Local Customs relating to trade was published. ⁵⁸ The underlying rationale for the publication was to facilitate disputes relating to trade and banking and safeguard customary usage. There is great attention paid to detail and to the anticipation of all kinds of circumstances involving the honouring of hundis and of defining shahjogi hundis. For example, several possible methods of encashing hundis were discussed. If at the end of the designated time period, the holder owed money to the person or moneylender who was to give him the specified amount, did he have the right to credit what was due in his account and pay the rest? The Digest offered two opinions—one was that the moneylender was within his rights to do so while the other stressed the need to find out whether the amount due was disputed or not, in which case the moneylender had to honour the hundi. The customary options listed in the digest seem to have functioned like judicial precedents and laid the basis for bankers and their patrons to defend their rights and practices, which in turn helped the community to script their self-representation more effectively. Following suit was the Cutchnu Vehpartantra by D. D. Sampat (1935), which included a report of the first meeting of the Cutch trading association and recommendations for a policy focused on stabilising the rate of hundi exchange, putting an end to betting and speculation, and modernising methods including instruction in business. As Ramji Tejpal put it, the rate of exchange was a critical issue and serious harm had ensued following speculation on it. ⁵⁹ It was therefore crucial for the darbar to take traders into confidence and develop a policy to regulate this.

Concluding Reflections

What stands out in both the indigenous histories of business communities as well as in their legal representations is the overarching commitment to traditional practices and technologies of business, with the hundi assuming primacy. The directories of businessmen which constituted a key element in the community histories, emphasised how the hundi-arhat business had given them access to commercial success and how its efficacy had ensured the smooth distribution of goods and commodities. The timing of these histories was important as they demonstrated the coming of age of Indian capital and its willingness to rationalise banking practices as a means of scripting their business profile, of squaring accounts, and of validating conventional practices to stand for a clearer regulatory apparatus. Hundis were seen as the principal instrument of the bazaar, gave the indigenous bankers a distinct corporate entity, and were even seen as crucial in promoting public good. Amateur historians like Bhimsen Kedia demonstrated how the sarrafi transactions of their communities helped ensure social harmony and provided ample opportunities for gain, a sentiment echoed repeatedly by subsequent histories. There were detractors like Prabhakar Shilotri (1924), who proposed establishing a produce exchange bank that would eliminate the influence of those communities—Bhatias, Boras, Banias and Marwaris—who were ‘ignorant parasites upon the country’s wealth’. This was consistent with the official opinions of those undertaking the banking enquiries. ⁶⁰ There was also the body of depositions that accompanied the government’s Banking Enquiry Committees and which reiterated the distinction between what constituted good formal banking practice and what was practiced by responsible sarrafs. Predictably, therefore, sarrafs and banking associations responded with greater alacrity about their centrality in the economic life of the country, and the duty of the government to support and secure their operations. We have on record many of the depositions in the Bombay Provincial Banking Enquiry Committee when deponents questioned the rationale behind the official demands for greater regulation, and insisted instead on the government initiating radical changes if indigenous banking was to be aligned to formal banking. They even questioned the right of the government to insist on bankers showing their balance sheets, pointing out how there were far less failures of shroffs than there were of banks. ⁶¹ The nature of the dialogue and surrounding discourse illustrated how despite the crucial interface of the bazaar with that of the imperial economy, the representation of indigenous capital and its praxis remained locked within stereotypes.

As it happened, neither the histories of self-representation nor the official recommendations of the Banking Enquiry Committees sufficiently resolved the ambiguities of the category of indigenous banking or the instruments subsumed under it. My intention here is not to question why the delegitimisation of indigenous banking persisted, but rather to consider how in the hundred years of colonial rule, when brokers and bankers had prospered within the domain of the bazaar, the idea of trade as a public good assumed more concrete traction and how bankers subsequently felt more confident about their role in public life. Whether we can look at this as evidence of a commercial revolution that altered the rationale for business and enabled the emergence of what Ritu Birla refers to as ‘agents of capital’ and ‘subjects of culture’ is not entirely clear, although one could presume that the counter-narrative was intended to give greater legal substance to the hundi. It would appear that the workings of law and the colonial economy produced a new capitalist subjectivity, evident in the histories and primers of banking that attempted to reconcile the gap between universal capital and vernacular/local commercial culture. Whether it was the report of the Cutch trading association, histories of banking and business in India or the opinion of professional economists who worked as experts for the banking enquiry committees, it is evident that there had emerged a clear and identifiable sense of commerce and banking as a public good, of the seths as future captains of the Indian economy, and of the importance of negotiating with a larger substratum of smaller operators. The stakes rose as India moved towards self-rule, and emotions ran high as traders and bankers made clear their disenchantment with colonial structures, putting forward a cohesive defence of their practice and demanding its guarantee in law. The debate clearly had moved beyond the categories of capital and culture: there was an outright demand for a new law that would embrace the informal sector and take steps to align it on the basis of equity and pragmatism. It was in preparation for this demand that community histories which foregrounded the resilience of indigenous enterprise organised around principles of trust and reciprocity and public wellbeing enshrined in law and tradition were written and circulated. Thus, the ethnographic project undertaken by business communities was not merely an exercise in vanity and self-aggrandisement, but was intended to enlist the support of the entire fraternity in furthering the agenda of the emerging nation. As Mohanlal Badjatiya observed in his preface to the Vyapariyon ka Itihas (1928), a history that counted more than 25 senior industrialists and traders among its patrons, it was time that India rediscovered the goddess of fortune in business, gave up the shackles of imperial dependence and showed the world how, amidst grave constraints, banking and brokerage had penetrated even the remotest corner of India. ⁶²