Did you Know that Hundi was Used by the East India Companies to Expand their Influence?

A Hundi in the Vernacular. Copyright: British Museum Trustees

The best known indigenous South Asian credit institution is 'hundi'. For hundreds of years, this system was used by merchants to remit money from one place to another, and to make payments like a bill of exchange. While I am loathe to put a square peg around hundi, some kind of approximation of hundi is necessary. My rough approximation of hundi is two-fold: a South Asian bill of exchange, and remittance system. So, hundi was both an instrument and a system. The mercantile networks which supported the use of hundis were often so well-established and pervasive that hundis were used in other parts of Asia, and even in distance locations like Africa where South Asian commerce had taken root. Over the course of the 16th, 17th, 18th and 19th centuries, even the Portuguese, Dutch, French and British East India companies used hundis to expand their own commercial and military presence in South Asia. Forming alliances with affluent South Asian merchants, and being able to tap into their networks was a significant factor in the British East India Company's ultimate hegemony over the other European companies.

Merchants and Bills of Exchange

Calcutta Merchants circa 1850.

The agents of credit instruments were inextricable from the instruments themselves. Merchants and bankers used credit instruments according to the rules, laws or customs governing their networks. Within a given network several kinds of credit instruments supporting different types of transactions inevitably evolved. Bills of exchange in particular, performed functions dictated by mercantile customs, norms and laws. Over time, specific bills of exchange acquired known classifications and functions which transcended individual networks. These instruments allowed merchants from one
community or region to conduct business with other merchants in far-flung locations.

A British Indian Promissory Note

In this video podcast I talk about a British Indian promissory note dating back to 1859. The note shows all the hallmarks of formalisation, and demonstrates some of the financial workings of the British Raj. Notes like these were keystones to financing the expansion of British Indian commercial activities both in the era of the British East India Company and the British Raj. Many of these promissory notes drew on the networks and resources of Indian indigenous bankers or merchants, as well as affluent British merchants.

The Promissory Note

Historically, credit instruments evolved into different formats and circulated widely amongst merchant communities to alleviate the need for carrying specie. Most modern historical forms that we know of, have typically taken some sort of paper format. They recorded the credits and debits of a given transaction, and allowed for greater flexibility and circulation in a variety of situations, and particularly in response to perceived risk. The hastily scribbled IOU, was quite simply, the rudimentary progenitor of more evolved forms of promissory notes. Later, this IOU was worded as a promise to pay a specific sum, and was witnessed by others to seal the promise, as shown by this 1774 English promissory note.

(Source Wikimedia)

In time, the promissory note became even more sophisticated. They conformed to set templates, carried official stamps to cover stamp duty, incurred interest, and were issued by formal institutions such as banks. The example below shows a 1926 promissory note drawn by a prominent South Indian
merchant community known as the Chettiyars to formalise a debt to the Rangoon branch of the Imperial Bank of India.