An economic history of Hundi, 1858-1978

A centuries-old artery of credit for Indian merchant networks, the indigenous credit system hundi has received no systematic attention in histories of the Indian subcontinent. Poorly understood and ill-defined, hundi was a highly negotiable instrument, and source of liquid capital. Hundi knitted together the properties of goods, capital, credit, information and agency, all of which served as the backbone of the Indian merchant network. Drawing on government proceedings, reports, and legal cases, this study provides an insight into the legal encounter between Indian indigenous institutions and the British colonial government. It simultaneously reveals the customs, contracts and individual functions of hundi determining its usage. In particular, this study addresses the important issue of how legal change in colonies affected the so-called ‘informal’ institutions which made trade possible. Between 1858-1947, hundi caught the eye of the British Indian government initially as an important taxable revenue stream. This resulted in hundi being integrated with statutes and regulations during the colonial period. However, this process of formalization was not without its own share of classificatory and interpretive problems, nor did hundi remain unchanged. Material from the 1930s reveals an appreciable change in how the government perceived hundi. The instrument distinguishes itself as a source of liquidity capable of promoting trade and modern banking developments. Moreover, hundi’s importance to the indigenous banking community underscores hundi’s function within the wider Indian economy. Nevertheless, the system’s integration with modern banking continued to present problems. The penultimate chapter explores why problems persisted, examining how a legal solution was proposed in 1978. Finally, the conclusion ties all the threads together and discusses the implications for hundi’s survival.