Abstract
Banking and credit systems were fairly well advanced in pre-colonial India. Large amounts of capital for commercial credit were also available—though at some cost in terms of high interest rates. This article illustrates these conditions by a study of the banking and other activities of the house of Jagat Seths of Bengal in the mid-eighteenth century.
The main objective of the article is to focus on the system of banking, credit facilities and business practices in Bengal during the pre-Colonial period, especially in the early eighteenth century. The prosperity of Bengal under the nawabi regime in the first half of the eighteenth century is now well documented. Indeed, for about 200 years, Bengal was one of the most prosperous ṣūbas of the erstwhile Mughal empire. Its fertile land, abundant and varied agricultural produce, its highly skilled workforce of innumerable weavers and artisans, its excellent and highly developed financial machinery, and commercial network made it a valuable prop of the Mughal empire. Indeed, Bengal became one of the most important centres of international trade from around the mid-seventeenth century, if not earlier. All this was possible at least partly because Bengal had evolved a well-developed and highly efficient financial machinery. Here I shall try to examine the structure of this mechanism through a review of the activities of the banking and mercantile house of the Jagat Seths.
House of the Jagat Seths
There is little doubt that there was a traditional banking system which, in the circumstances it had to function, was quite efficient. In the traditional banking system, the functions, of the bank were performed by the shroffs (money changers/bankers), mahajans and others including merchants. At the same time there was a group of people who were the real counterpart of modern bankers, such as the great banking house of the Jagat Seths. The Seths were referred to as ‘bankers’ by the officials of the European Companies, whether the English, Dutch, French or others.
The Jagat Seths played a very prominent role in Bengal’s economy from the early decades of the eighteenth century. The Bengal money market which financed both trade and government was closely controlled by them. Through their control of the credit market and over coinage of specie, the Jagat Seths had a close relationship with the European Companies which imported quantities of silver. These Companies borrowed freely from the Seths’ kothees (agencies or branches) in Calcutta, Kasimbazar, Dhaka, Hughli, Patna, etc. Robert Orme who lived in Bengal in the early 1750s described the then Jagat Seth as ‘the greatest shroff and banker in the known world’.
2
Captain Fenwick, writing on the ‘affairs of Bengal in 1747–48’, referred to Jagat Seth Mahtab Rai as a ‘favourite of the Nabob and a greater Banker than all in Lombard Street [Banking district in London] joined together’.
3
Luke Scrafton who was the Company’s agent at the Murshidabad darbar wrote to Clive in 1757 that ‘Juggutseat is in a manner the government’s banker; two thirds of the revenue are paid into his house, and the government give the draught [draft] on him in the same manner as a Merchant on the Bank’.
4
Referring to merchants in general and the Jagat Seths in particular, Clive wrote on his first visit to Murshidabad after the battle of Plassey:
5
The city of Murshidabad is as extensive, populous and rich, as the city of London, with this difference that there are individuals in the first possessing infinitely greater property than any of the last city.
The founder of the house in Bengal, Manickchand, migrated from Nagar in Marwar first to Dhaka and then, when Murshid Quli left Dhaka for Murshidabad (then called Maksudabad) in 1704, he followed him there as he realised shrewdly that the Dīwᾱn Murshid Quli was the rising star. The financial credit and prestige of the house was raised in that city to such a great height by Manickchand and his son Fatechand that the Mughal emperor conferred on the latter the title of ‘Jagat Seth’ which means ‘the Banker of the World’, as a hereditary distinction in 1722. The house reached the zenith of its prestige and prosperity during the time of Fatechand who, after wielding great influence in the commercial, economic and political life of Bengal for nearly thirty years, died in 1742. He was succeeded by his two grandsons, Jagat Seth Mahtab Rai and Maharaja Swaroopchand. 6
Source of Income
The major sources of the income, power and prestige of the house of Jagat Seth were profits from their farming of the Murshidabad and Dhaka mints, along with two-thirds of the province’s revenue collection, and control over rates of exchange, interest rates, bill-broking and provision of credit. By 1720 the Seths had established an absolute monopoly of the mint, obviously with the support of the Nawab, Murshid Quli Khan. This is confirmed by the report of the Fort William Council, which wrote in 1722: ‘…Futtichand having the entire use of the mint, no other shroff dare buy an ounce of silver’. 7 The English East India Company had tried for a long time to have minting privileges and the Kasimbazar Council was asked to secure the privileges from the Nawab. The Council negotiated with some of the high officials at the darbar but ‘are informed that while Futtichund is so great with the nabob, they can have no hope of that Grant, he alone having the sole use of the mint nor dare any other shroff or merchant buy or coin a rupee’s worth of silver’. 8
The Jagat Seths were determined to maintain the privilege of minting because it was a great source of income for them. Even as late as 1743 the Kasimbazar factors reported: ‘… but this [minting privilege] they can never hope while Futtichund subsists and has that weight with the government which his usefulness to them and great influence at Court naturally gives him’. 9 The European Companies were thus most often forced to sell all their treasure—both bullion and specie—to the house of the Jagat Seth, and under the circumstances they had no other option but to accept the price the banking house offered which could obviously be much lower than the market price.
Rates of Exchange
The control and power of the Jagat Seths over Bengal’s money market was so great that the rate of exchange fixed by the house was accepted by all concerned. Through his great influence on the Bengal administration which he gained by virtue of his steady financial support to the Nawab, Fatechand could induce the government to take such measures and pass such regulations for the rate of money exchange as would favour the house. There are several instances of this in the Company records. 10 The batta [discount] on re-coinage was another source of profit to the Jagat Seths. According to Luke Scrafton’s estimate in 1757, the Seths coined five million rupees a year and the income on this account amounted to 0.35 million rupees. 11 The batta on various coins from different parts of India was also a source of great profit for the Seths. The house was also the receiver and treasurer of government revenue payments made by the zamindars and amils (revenue collectors). It received other government collections as well. The Jagat Seths gradually began to stand security for most of the renters. 12
Interest Rates
As all the European companies, without exception, had to face a chronic shortage of liquid capital for investments, they were forced to borrow from the local capital market. Though they also often borrowed from other smaller bankers/shroffs and merchants, their mainstay were the Jagat Seths.
That the house of Jagat Seth was the most substantial lender to the European Companies is well-documented, a fact to which we shall revert to later. The Jagat Seths lent money to the Europeans at the rate of 12 per cent per annum which was the prevalent rate in Bengal at that time though it was 9 per cent in Surat around this time. 13 The Court of Directors in London or the Heeren XVII in Amsterdam or for that matter the authorities of the French Company in Paris were not at all happy with this rate, as they thought it was ‘very high’ and wrote to their officials in Bengal to try to get it reduced. The Court of Directors of the English Company wrote to Calcutta with great concern that ‘upwards of 4,000 pound sterling’ was paid for interest at Kasimbazar during the year May 1730 to April 1731, besides ₹643,832 ‘running at the extravagant rate of twelve percent per annum from that time’. It told the Calcutta Council that the high rate of interest was a ‘canker to the Company’s estate’ and should be rooted out. 14 But despite all the reprimands from the authorities in Europe, the Companies had no other alternative but to borrow money from the local credit market, and that also mostly from the Seths. Though the chief of the French Company in Bengal, Dupleix, described Jagat Seth Fatechand as the ‘greatest of Jews’ and ‘our chopping block’, he had often to seek loans of 100 to 300 rupees from the Seths. 15
The companies, especially the English Company appealed, time and again, to Jagat Seth and urged him to reduce the rate of interest but to no avail, until the English appealed to Jagat Seth Fatechand in December 1740, whereafter he decreed that from then onward the rate would be 9 per cent, and not 12 per cent. Thus the rate of interest not only in Bengal but also in the whole of North India stood at 9 per cent from then on. 16 There is ample evidence that the English Company borrowed money at 9 per cent from then onward from the Seths’ kothees in Calcutta, Dhaka, Kasimbazar, Patna, etc. The English preferred borrowing from the Seths rather than from other money merchants because, as the Kasimbazar Council noted in 1741: ‘Futtychand having favoured us in lowering the Interest and as we are apprehensive he may be displeased, should we take up money of other people and so raise the interest again on us, agreed that we give him preference’. 17 The Dutch, French and other European Companies also borrowed money from the Seths, and other merchants and shroffs at that rate. The fact that the Jagat Seths could reduce the interest rate at the time when they wanted to, is a clear indication of their influence over the money and credit market in Bengal and even northern India in the first half of the eighteenth century.
Jagat Seths—An Institution
The house of Jagat Seths became such an institution, at least from around the 1740s, that it became a model for merchants, shroffs and bankers in the province. The Kasimbazar Council reported on 7 June 1742, after Jagat Seth Fatechand’s departure from Murshidabad because of the Maratha invasion, that ‘no merchant or shroff of any consequence will think themselves safe in the city till Juggutseat comes to reside there’, and that the Nawab solicited Jagat Seth to return to the city, ‘his presence being as necessary to the Nabob as to the merchants’ and ‘his conduct being the general guide to all of them’. 18 On 14 June the Council noted that the merchants came back from their places of retreat when they heard that Jagat Seth had returned to the city. 19 When Fatechand left Murshidabad in the wake of the Maratha incursions in 1743, the Kasimbazar factors reported to Calcutta on 6 June: ‘It is wholly impracticable to raise money there for never was known so great a scarcity occasioned by the retreat of Futtichund’. 20 They wrote in 2 July 1743 that ‘Futtichund is returned and money is more plenty here’. 21
It was from the early eighteenth century that the Jagat Seths were permanent members of the Murshidabad darbar and exercised an influence over the Nawab and his administration that seems unparalleled in the history of Bengal. Even from the time of Manickchand, the founder of the family in Bengal, the influence of the family ‘was of chief importance in deciding the result of every dynastic revolution, and they were always in constant communication with the ministers of the Delhi Court’. 22 In 1730 when the Kasimbazar Council tried to influence the government for the ‘currency of their trade’ through Haji Ahmed (Nawab Alivardi’s brother) and Alamchand (the Diwan), the two most powerful personages besides Jagat Seth in the Murshidabad darbar, they answered that ‘the Nabob has such a regard for Futtichund, it was out of their power to serve us in opposition to him and continue to advise us to make up the affair with him as well as we can’. 23 Again Haji Ahmed told them in 1730 that ‘Futtichaund’s Estate was esteemed as the King’s treasure and the Nabob was resolved to see him satisfied’. 24 Jean Law, the chief of the French factory at Kasimbazar, wrote: ‘It is this family [Jagat Seth] who conducted all his [Alivardi’s] business and it may be said that it had long been the chief cause of all the revolutions in Bengal’. 25
Wealth of the Seths
As to the wealth of the house of the Jagat Seths, it is extremely difficult to form a correct estimation. Ghulam Husain, the author of Siyaru’l Mutā
The Jagat Seths’ Estimated Annual Income, 1757
How rich the Seths were is also borne out by other references in contemporary Persian chronicles. For example, when the Marathas, guided by Mir Habib, led a lightning raid into Murshidabad in 1742, they succeeded in plundering the Jagat Seths’ house and carried away ₹20 million (0.3 million according to Karam Ali, the author of Muzaffarnama) besides a large quantity of other goods. The translator of Siyaru’l Mutā
Dutch Appraisal of the Seths
The Jagat Seths wielded so much power and influence in the economic and political life of Bengal that the Dutch Directors always made it a point to recommend to their successors in office to have good relations with the Seths. One of the Dutch Directors, Sichtermann, wrote in his ‘Memorie’ in 1744 that Jagat Seth Fatechand was the greatest banker of Hindustan (voornaamsten wisselaar van geheel Hindosthan), his business was spread all over the ‘kingdom’ and though he did not take part directly in governance, he had great influence over it. 32 Jan Huijghens, who succeeded Sichtermann, wrote in 1750 in his ‘Memorie’ that the Company should maintain good rapport with Baijnath, the Seths’ gomashta in Hughli, who could influence his masters in favour of the Dutch. 33
Similarly Jan Kerseboom, the next Director, mentioned in his ‘Memorie’ in 1755 that the business empire of Jagat Seth Fatechand’s heirs, Jagat Seth Mahtab Rai and Maharaja Swaroopchand, was growing ‘more and more powerful and extensive’ because of the considerable sums they were lending to the government. He recommended that the Dutch should cultivate their friendship which was very important for the Company’s cause. 34 Kerseboom’s successor, Louis Taillefert, emphasised again that the Jagat Seths were the greatest bankers of Hindustan. Interestingly, he wrote home that the name of Jagat Seth Fatechand had been mentioned in the letters from Bengal for such a long time that the authorities in Holland might have begun to doubt whether such a person did exist at all. He pointed out that the kothee of the Jagat Seths in Hughli was under the name of Seth Manickchandji and Seth Anandchandji, in Dhaka under the name of Seth Manickchandji and Jagat Seth Fatechandji, and in Patna under the name of Seth Manickchandji and Seth Dayanandji. The house of Jagat Seth, he added, made all the bankers and money changers in Bengal and many in Bihar subservient to them, and those who did not submit were gradually eliminated from the business with the connivance of the government. 35
Credit Market
As we have indicated earlier, the credit market was highly efficient and quite well developed in the early eighteenth century. As a matter of fact the credit market came to the rescue of the European Companies whenever these were faced with chronic shortage of working capital. Though there is no systematic account of the amount borrowed annually in different factories by different Companies, quite a few references here and there in the Company records give an indication of the sums borrowed at different times in their different factories. Towards the beginning of the eighteenth century, the English Company’s debts to the merchants and shroffs in Calcutta and Kasimbazar at certain specific dates amounted to around ₹0.7 million and ₹0.25 million. 36 In 1720/21 the Company’s debt in Bengal amounted to ₹2.4 million, and stood at ₹5.5 million in 1747/48, exclusive of interest. 37 The Dutch Company also borrowed from the local credit market. Its debt to the Kasimbazar merchants, with interest, in September 1724 amounted to around ₹1.5 million. 38 Among the main creditors of the Dutch Company, the house of Jagat Seth figures unfailingly even in that early period. In two separate entries on 1 September 1724, the credit extended by the house to the Company totalled ₹0.26 million. 39 The Katmas of Kasimbazar did not lag behind. According to the same list, there were eight members of the Katma family as creditors, to whom the Company owed ₹206,794. 40 Even the Ostend and the French companies too borrowed from the local credit market. The Ostend Company was lent money by the local shroffs and merchants. Alexander Hume, the chief of the Company in Bengal, reported in 1730 that among other merchants, Nainsook Babu, a near relation of Jagat Seth Fatechand, had lent the Company a large sum of money. 41
The most substantial lender to the European Companies remained the house of Jagat Seth. Even in the early years between 1718 and 1730, the English Company borrowed from the Jagat Seths at Murshidabad on an average more than 0.4 million rupees a year. 42 In the three years between 1755 and 1757, the Dutch debt to the house of Jagat Seth amounted to ₹2.4 million. 43 In 1757 alone the Dutch borrowed ₹0.4 million from the Seths, while the French debt to the Seths at the time of the fall of Chandernagore in March 1757 amounted to ₹1.5 million. 44 Captain Fenwick, an English free merchant who was in Bengal at that time, estimated the French debt in 1747–48 to be ‘upward of 17 lakhs’ (1.7 million), while William Watts, an English official in Bengal, wrote on 18 February 1757 to Robert Clive that the French owed about ₹1.3 million to the Seths. 45
Hundis or Bills of Exchange
As there was brisk trade in Bengal during the period, there was bound to be a considerable volume of financial transactions. As transfer of ready money/cash from one place to another was not always safe, there had to be some means for transfer of the funds to distant places. As, for example, huge amount of cash had to be transferred quite often from Murshidabad, Kasimbazar, Hughli or Calcutta and other trade marts and cities to places in Northern India like Agra, Delhi, Patna, Lahore, Multan in the North and Surat, Ahmedabad, etc., in western India. Even the annual surplus revenues of Bengal that had to be sent to Delhi were, during the 1730s mainly remitted through the hunids of the Jagat Seths drawn on their kothee in Delhi. 46 As the Seths had their kothees in almost all the important trade marts in north India, and possibly even in the Red Sea and Persian Gulf regions, the bills issued by the house were welcome everywhere. In general, however, the merchant networks provided channels and trust for the hundis used for financing trade and remittances of tribute and revenue by regional authorities. It was the shroffs who specialised in issuing hundis to facilitate remittances to be made. It is amply clear from Sujan Rai’s description that the hundi was a negotiable instrument, usually transferred at a small discount. 47 It is also clear that the shroffs specialized not only in issuing hundis but also in discounting them. This is apparent from the records of the English Company. The English factors in Agra once reported that the shroffs were not then lending out money at interest for they could earn ‘more profit by exchange’, that is by using their funds to discount hundis. 48
It was not only in Bengal that the Company took recourse to hundis to finance its trade in smaller factories, it also used this instrument to finance its commerce in different parts of India. The hundis were often drawn on the merchants in Murshidabad to transact the Company’s business at Surat, which will be apparent from the following letter:
Our customary method of supply has been by the bills drawn in favour of the Surat factory by the Moorshidabad merchants…we cannot suppose that with all our endeavours we shall be able to raise drafts to near the sum (13 lacs—1.3 million of sicca rupees) they require.
49
Thus even in the 1760s, even the English Council at Bombay asked for a loan from the merchants in Murshidabad which was to be sent there by hundi. We can have a rough estimate of the amount usually asked for as loans from Murshidabad to be sent by hundis from the following excerpt: ‘In one year the amount of draft on us (at Murshidabad) for the sums from Bombay and Surat exceeded 4 lacs (0.4 million) of rupees and seldom has it equalled 3 lacs’. 50
The house of Jagat Seths whose headquarters were at Murshidabad, came to stand as a colossus in the world of commerce and finance in India, and it was this house which provided maximum facilities to the East India Company for hundis till 1765. Three hundis, of the Company one for ₹5,00,000 and two for ₹1,00,000 each were discounted by the Jagat Seths in the year 1765. But after the acquisition of diwani (the right to collect revenue) by the Company in 1765, the house began to lose its importance in the financial world. This is demonstrated by the fact that in 1767, the Company asked the Seths to issue hundis for ₹0.5 million on Surat but they expressed their inability to comply with the request as they had stopped their business at Surat and had no agent or kothee there. 51
Thus we see that specialised activities of a large class of merchants, especially bankers/shroffs, helped the process of transferring money through hundis on their agents or partners in various parts of India. More details of all this are to found in Irfan Habib’s admirable essay 52 and also to some extent in my paper, as also in Om Prakash’s paper presented in the Helsinki Session of the International Economic History Congress, 2006. 53 In view of this material already published, we are not going through more details here.