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Transition of Credit Organizations: Caste Bankers in Colonial India

Published online by Cambridge University Press:  07 April 2017

Anirban Mukherjee
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Abstract

This paper looks at the evolution of business practice of indigenous banking groups in colonial India. Specifically, it studies why in the early twentieth century, the Indian banking caste Nattukottai Chettiar moved from caste-based banking to joint stock banking. The paper argues that caste-based banking had two advantages over joint stock banking—caste-based monitoring of agents and reciprocity-based informal insurance within the caste. In the early twentieth century with the improvement of communication technology and expanding global trade, the caste banking lost both the edges. This prompted some of the caste bankers to move to joint stock banking. I provide a theoretical structure explaining the transition and provide evidence from archival and secondary sources in support of my theory.

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Social Science History , Volume 41 , Issue 2 , Summer 2017 , pp. 333 - 359
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Copyright © Social Science History Association, 2017 

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References

References

Report of the Burma Provincial Banking Enquiry Committee (1930). Vol. 1.

The Indian Central Banking Enquiry Committee (1931). Vol. 1, Part II.

Report of the Madras Provincial Banking Enquiry Committee (1931). Vol. 1.

Madras Provincial Banking Enquiry Committee (1931). Vol. 2—Written Evidence.

Report of the Indian Industrial Commission (1916–18a).

Report of the Indian Industrial Commission (1916–18b)—Minutes of Evidence. Vol. 3, Madras and Bangalore.

New Law Reports Sri Lanka, http://www.lawnet.lk/vol_index.php?id=14.

Statistical Abstract Relating to British India, Her Majesty's Stationary Office, Digital South Asian Library, http://dsal.uchicago.edu/statistics/.

Correspondence of Bank of Bengal to Rangoon (1903: CBBR 1903). Document no. BR/Rgoon/Cor/005. 281, State Bank of India archive, Kolkata.

STBI: Statistical tables relating to Banks in India (1925)

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Freitas, Kripa (2006) “The Indian caste system as a means of contract enforcement.” Working Paper.Google Scholar
Ghatak, Maitreesh (1991) “Group lending, local information and peer selection.” Journal of Development Economics 60 (1): 27–50.CrossRefGoogle Scholar
Goldsmith, Raymond W. (1983) The Financial Development of India, 1860–1977. New Delhi: Oxford University Press.Google Scholar
Green, Edwin, and Kinsey, Sarah (1999) The Paradise Bank: The Mercantile Bank of India, 1893–1984. Aldershot, UK: Ashgate.Google Scholar
Greif, A. (1993) “Contract enforceability and economic institutions in early trade: The maghribi traders’ coalition.” The American Economic Review 83 (3): 525–48.Google Scholar
Greif, Avner, Milgrom, Paul, and Weingast, Barry (1994) “Coordination, commitment, and enforcement: The case of the merchant guild.” Journal of Political Economy 102 (August): 745–76.Google Scholar
Gupta, Bishnupriya (2012) “Discrimination or social networks? Industrial investment in colonial India.” Working Paper.Google Scholar
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Markovits, Claude (2000) The Global World of Indian Merchants, 1750–1947: Traders of Sind from Bukhara to Panama. New York: Cambridge University Press.Google Scholar
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Ray, Rajat K. (1995) “Asian capital in the age of European domination: The rise of the bazaar, 1800–1914.” Modern Asian Studies 29 (3): 449–554.Google Scholar
Ray, Rajat K., ed. (1992) Entrepreneurship and Industry in India: 1800–1947. New Delhi: Oxford University Press.Google Scholar
Reinganum, Jennifer, and Wilde, Louis L. (1986) “Settlement, litigation, and the allocation of litigation costs.” The RAND Journal of Economics 17 (Winter): 557–66.Google Scholar
Roy, Tirthankar (2010) Company of Kinsmen: Enterprise and Community in South Asian History 1700–1940. New Delhi: Oxford University Press.Google Scholar
Rudner, David W. (1994) Caste and Capitalism in Colonial India: The Nattukottai Chettiars. Berkeley: University of California Press.Google Scholar
Schweizer, Urs (1989) “Litigation and settlement under two-sided incomplete information.” The Review of Economic Studies 56 (2): 163–77.Google Scholar
Seshadri, R. K. (1982) A Swadeshi Bank from South India: A History of Indian Bank 1907–1982. Madras: Indian Bank: 49.Google Scholar
Shapiro, Carl, and Stiglitz, Joseph E. (1984) “Equilibrium unemployment as a worker discipline device.” American Economic Review 74 (3): 433–44.Google Scholar
Ito, Shoji (1966) A note on the business combines in India—with special reference to the Nattukottai Chettiars. The Developing Economies 4 (3): 367–80.Google Scholar
Sridevi, S. (2005). “Local banking and material culture amongst the Nattukottai Chettiars of Tamilnadu.” Unpublished thesis, Jawaharlal Nehru University.Google Scholar
Tabellini, Guido (2006) “Culture and institutions: Economic development in the regions of Europe.” Working Paper.CrossRefGoogle Scholar
Timberg, Thomas A. (1977) The Marwaris: From Traders to Industrialists. New Delhi: Vikas.Google Scholar
Tripathi, Dwijendra (2004) The Oxford History of Indian Business. New Delhi: Oxford University Press.Google Scholar
Weber, Max (2001) The Protestant Ethic and the Spirit of Capitalism. London: Routledge.Google Scholar
Weerasooria, W. S. (1973) The Nattukottai Chettiar: Merchant Bankers in Ceylon. Dehiwala, Sri Lanka: Tisara Press: 126–53.Google Scholar
Bagchi, Amiya K. (1972) Private Investment in India 1900–1939. Cambridge: Cambridge University Press.Google Scholar
Bagchi, Amiya K. (1997) The Evolution of the State Bank of India. Vol. 2. New Delhi: Sage Publication.Google Scholar
Bebchuk, Lucian A. (1984) “Litigation and settlement under imperfect information.” The RAND Journal of Economics 15 (Autumn): 404–15.Google Scholar
Besley, Timothy, Coate, Stephen, and Loury, Glen (1993) “The economics of rotating savings and credit associations.” The American Economic Review 83 (4): 792–810.Google Scholar
Carlos, Ann M., and Nicholas, S. (1993) “Managing the manager: An application of the principal agent model to the Hudson's Bay Company.” Oxford Economic Papers, New Series 45 (2): 243–56.Google Scholar
Chwe, Michael S.-Y. (1990) “Why were workers whipped? Pain in a principal-agent model.” The Economic Journal 100 (403): 1109–21.Google Scholar
Clark, Gregory (2007) A Farewell to Alms. Princeton, NJ: Princeton University Press.Google Scholar
Coate, Stephen, and Ravallion, Martin (1993) “Reciprocity without commitment: Characterization and performance of informal insurance arrangements.” Journal of Development Economics 40 (1): 1–24.CrossRefGoogle Scholar
Freitas, Kripa (2006) “The Indian caste system as a means of contract enforcement.” Working Paper.Google Scholar
Ghatak, Maitreesh (1991) “Group lending, local information and peer selection.” Journal of Development Economics 60 (1): 27–50.CrossRefGoogle Scholar
Goldsmith, Raymond W. (1983) The Financial Development of India, 1860–1977. New Delhi: Oxford University Press.Google Scholar
Green, Edwin, and Kinsey, Sarah (1999) The Paradise Bank: The Mercantile Bank of India, 1893–1984. Aldershot, UK: Ashgate.Google Scholar
Greif, A. (1993) “Contract enforceability and economic institutions in early trade: The maghribi traders’ coalition.” The American Economic Review 83 (3): 525–48.Google Scholar
Greif, Avner, Milgrom, Paul, and Weingast, Barry (1994) “Coordination, commitment, and enforcement: The case of the merchant guild.” Journal of Political Economy 102 (August): 745–76.Google Scholar
Gupta, Bishnupriya (2012) “Discrimination or social networks? Industrial investment in colonial India.” Working Paper.Google Scholar
Headrick, Daniel R. (1988) The Tentacles of Progress: Technology Transfer in the Age of Imperialism, 1850–1940. Oxford: Oxford University Press.Google Scholar
Kudiasya, Medha M. (2009) “Marwari and Chettiar merchants, c. 1850’s–1950’s: Comparative trajectories,” in Kudaisya, Medha M. and Ng, Chin-Keong (eds.) Chinese and Indian Business: Historical Antecedents. Vol. 24. Leiden, The Netherlands, and Boston: Brill.Google Scholar
Mahadevan, Raman (1978) “Immigrant entrepreneurs in colonial Burma: An exploratory study of the role of Nattukottai Chettiars of Tamil Nadu, 1880–1930.” The Indian Economic and Social History Review 15 (3): 329–58.Google Scholar
Markovits, Claude (2000) The Global World of Indian Merchants, 1750–1947: Traders of Sind from Bukhara to Panama. New York: Cambridge University Press.Google Scholar
McCloskey, Deirdre (2006) The Bourgeois Virtues: Ethics for an Age of Commerce. Chicago: Chicago University Press.Google Scholar
Munshi, Kaivan, and Rosenzweig, Mark (2006) “Traditional institutions meet the modern world: Caste, gender, and schooling choice in a globalizing economy.” The American Economic Review 96 (4): 1225–52.CrossRefGoogle Scholar
Ray, Rajat K. (1995) “Asian capital in the age of European domination: The rise of the bazaar, 1800–1914.” Modern Asian Studies 29 (3): 449–554.Google Scholar
Ray, Rajat K., ed. (1992) Entrepreneurship and Industry in India: 1800–1947. New Delhi: Oxford University Press.Google Scholar
Reinganum, Jennifer, and Wilde, Louis L. (1986) “Settlement, litigation, and the allocation of litigation costs.” The RAND Journal of Economics 17 (Winter): 557–66.Google Scholar
Roy, Tirthankar (2010) Company of Kinsmen: Enterprise and Community in South Asian History 1700–1940. New Delhi: Oxford University Press.Google Scholar
Rudner, David W. (1994) Caste and Capitalism in Colonial India: The Nattukottai Chettiars. Berkeley: University of California Press.Google Scholar
Schweizer, Urs (1989) “Litigation and settlement under two-sided incomplete information.” The Review of Economic Studies 56 (2): 163–77.Google Scholar
Seshadri, R. K. (1982) A Swadeshi Bank from South India: A History of Indian Bank 1907–1982. Madras: Indian Bank: 49.Google Scholar
Shapiro, Carl, and Stiglitz, Joseph E. (1984) “Equilibrium unemployment as a worker discipline device.” American Economic Review 74 (3): 433–44.Google Scholar
Ito, Shoji (1966) A note on the business combines in India—with special reference to the Nattukottai Chettiars. The Developing Economies 4 (3): 367–80.Google Scholar
Sridevi, S. (2005). “Local banking and material culture amongst the Nattukottai Chettiars of Tamilnadu.” Unpublished thesis, Jawaharlal Nehru University.Google Scholar
Tabellini, Guido (2006) “Culture and institutions: Economic development in the regions of Europe.” Working Paper.CrossRefGoogle Scholar
Timberg, Thomas A. (1977) The Marwaris: From Traders to Industrialists. New Delhi: Vikas.Google Scholar
Tripathi, Dwijendra (2004) The Oxford History of Indian Business. New Delhi: Oxford University Press.Google Scholar
Weber, Max (2001) The Protestant Ethic and the Spirit of Capitalism. London: Routledge.Google Scholar
Weerasooria, W. S. (1973) The Nattukottai Chettiar: Merchant Bankers in Ceylon. Dehiwala, Sri Lanka: Tisara Press: 126–53.Google Scholar