Q.Discuss the development of indigenous banking system in Indian subcontinent.

India's trade flourished in ancient and medieval times partly because it developed its own systems for supplying capital and safely moving money over long distances, well before modern banking existed.

Business — including trade and commerce — has played a vital role in India since time immemorial, and the indigenous banking system was central to its golden economic past.

Role of the indigenous banking system

• It supplied manufacturers, traders and merchants with additional capital funds for the expansion of their activities.
• Later, commercial and industrial banks evolved to finance trade and commerce, and agricultural banks provided short- and long-term loans to farmers.
• The spread of credit transactions, loans and advances strengthened commercial operations across the subcontinent.

Hundi and Chitties — instruments of exchange

• Travel by land or sea carried the risk of theft and robbery, so to move money safely over long distances merchants used Hundi and, in the south, Chitties — documents that transferred money from one hand to another.
• The word Hundi literally means "to collect." It was written in the vernacular language and, as an instrument of exchange, embodied a contract that (i) warranted the payment of money through an unconditional promise or order, and (ii) was capable of being transferred by valid negotiation.

Types of Hundi (a Darshani hundi is payable at sight; a Muddati hundi is payable after a fixed term):

• Dhani-jog Darshani — payable to any person; no liability over who received payment.
• Sah-jog Darshani — payable to a specific "respectable" person; liability over who received payment.
• Firman-jog Darshani — made payable to order.
• Dekhan-har Darshani — payable to the presenter or bearer.
• Dhani-jog Muddati — payable to any person with no liability, but only after a fixed term.
• Firman-jog Muddati — payable to order after a fixed term.
• Jokhmi Muddati — drawn against dispatched goods; if the goods are lost in transit the drawer/holder bears the cost and the drawee carries no liability.

Significance

• Reliable finance and safe money-transfer instruments let trade centres flourish, supported a favourable balance of trade (exports exceeding imports), and helped India control a large share of the world's wealth in ancient and medieval times. The Surat hundi, for instance, was honoured as far away as Egypt and Iran.