Formality, Informality and the Grey Zone

This week I am redirecting you to a post entitled: 'Between Informality and Formality: Hundi/Hawala in India', which I wrote for the 'India at LSE' blog. The article discusses how a South Asian indigenous financial institution known as hundi  or hawala - a living institution - often occupies uneasy ground between the 'black' economy, the grey middle zone, and an older more formal past, due to the changing nature of laws and financial culture.

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.