Indian Mercantile Classes, Banking, Insurance and Credit Systems | History Optional for UPSC (Notes) PDF Download

Introduction

• Merchants ranging from local sellers to large traders involved in overseas commerce were present throughout the country.
• Specialized groups of merchants, brokers, and sarrafs played crucial roles at various levels of the commercial process.
• Large-scale trading operations not only reinforced existing practices and institutions but also led to the emergence of new ones.
• Key systems such as banking, bills of exchange, and money lending were vital in facilitating trade.
• Trading partnerships and insurance were also common practices during this period.

Personnel of trade

• Various groups such as merchants, sarrafs(money changers), moneylenders, and brokers were actively involved in trade and commerce within Indian markets.
• The rise in commercial activities attracted a significant number of people to these professions.
• These trading groups were not strictly divided; often, the same individual would perform two or more roles simultaneously.

Merchants

• The Banjaras were a trading group known for their role in facilitating trade between villages, towns, and even across regions. They were crucial for connecting rural areas with urban markets.
• They focused on specific commodities like grain, pulses, sugar, and salt, using oxen to transport goods.
• Historian Jahangir noted their significant presence, describing them as a class of people who transported goods and sometimes accompanied armies.
• The Banjaras traveled in groups called Tandas, each led by a chief known as Nayaka. These groups could include hundreds of people and their animals.
• They were both Hindus and Muslims and were sometimes categorized into groups based on the goods they traded.
• Similar trading groups existed in other parts of India, such as the Nahmardis in Sindh and the Bhotiyas between the Himalayas and the plains.

Merchants in Different Regions

Baniyas:

• In North India and the Deccan, a subcaste of the vaisyas known as the Baniyas emerged as prominent merchants.
• They were predominantly from Hindu and Jain communities, with notable subgroups like the Agarwals and Oswals, who were known for their trade and moneylending activities.
• The Agarwals hailed from Agroha in present-day Haryana, while the Oswals came from Osi in Marwar.
• The Marwar region produced many traders, collectively known as Marwaris, who became widespread and influential across India.
• European travelers of the time praised the Baniyas for their trading skills and meticulous accounting.

Khatris:

• In Punjab, the Khatris were a significant trading community, with a diverse membership that included Hindus, Muslims, and Sikhs.
• The Khatris were involved in various trading activities and were known for their wealth and influence.

Multanis:

• Active in Delhi, parts of Punjab, and Sindh during the 13th to 17th centuries, the Multanis were another important trading community.

Bohras:

• The Bohras, primarily Muslims, were significant merchants based in Gujarat and other western regions of India.
• They were an urban community, with notable merchants like Mulla Muhammad Ali and Ahmed Ali, who amassed great wealth.

Khojahs and Kutchi Memons:

• Among Muslims, the Khojahs and Kutchi Memons from Gujarat were also prominent merchant communities operating along the western coast.

South India:

• In southern India, various merchant groups like the Chettis, derived from the Sanskrit word Shreshthi, played vital roles.
• Along the Coromandal coast, merchants known as Kling were active, particularly in textiles.
• Komatis, a trading caste, mainly operated as brokers for textiles and other products, connecting the hinterland to port towns.
• Chulias, another merchant group, were divided into sub-groups, with the Marakkayars being the wealthiest, involved in trade across coastal regions and Southeast Asia.
• Golkunda Muslims, including the Mopilla Muslims of Indo-Arab origin, were also significant merchants in the region.

Moneylenders and Sarrafs

• In Northern India, traditional merchants, often from the Baniya community, acted as both traders and moneylenders.
• In villages, they lent money to peasants to help them pay land revenue.
• In towns and larger places, these merchants also took on the role of moneylenders.

Sarrafs:

• Sarrafs played a crucial role in trade by functioning as money-changers, bankers, and traders of precious metals and jewelry.

As Money-Changers:

• Sarrafs were experts in assessing the metallic purity and weight of coins.
• They determined the current exchange rates for different coins.
• According to the traveler Tavernier, even small villages in India had a money changer, called "Cherab," who acted as a banker, facilitating money remittances and issuing letters of exchange.
• Sarraf was also a part of the Mughal mint system, responsible for fixing the purity of bullion and verifying the purity of coins after minting.

As Bankers:

• Sarrafs accepted deposits and provided loans at interest.
• They issued bills of exchange or hundis and honored those issued by others.

Brokers

• Dallals or brokers, as specialized mercantile professionals, emerged prominently after the Turkish conquest of North India.
• They served as vital middlemen in various commercial activities and transactions.
• With the rise of inter-regional and foreign trade, their role became increasingly crucial.
• Foreign merchants and distant regional traders heavily relied on these brokers for their transactions.

Brokers’ Role and Necessity:

• The need for brokers in India stemmed from the scattered nature of production centers across the country.
• Individual outputs from these centers were small, with some specializing in specific commodities.
• A large number of buyers competing for the same commodities in the same markets further necessitated the use of brokers.

Historical References:

• Numerous historical references highlight the transactions conducted through brokers.
• The English East India Company records frequently mention the employment of brokers at their various factories.
• Fryer, in the late 17th century, emphasized that “without brokers neither the natives nor the foreigners did any business.”
• Ovington (1690) noted that brokers, often of the bania caste, were crucial in buying and selling goods for the company.

Brokers in Major Commercial Centers:

• Historical accounts, such as that of Manrique in 1640, indicate the presence of around 600 brokers and middlemen in Patna.
• It is likely that the number of brokers was much larger in major commercial centers like Surat, Ahmedabad, Agra, and other coastal towns.

Brokers in Foreign Ports:

• Indian brokers were not limited to domestic markets; they also operated in foreign ports such as Gombroon (Bandar Abbas), Basra, and Bandar Rig.
• In some cases, entire families worked together as brokers in partnership.

Categories of Brokers:

• Jan Qaisar categorizes brokers into four types: those employed by companies or merchants, those working for multiple clients, those operating on an ad-hoc basis, and state-appointed brokers at commercial centers.
• Independent brokers can be further divided based on their areas of specialization, dealing in either one specific commodity or multiple commodities.
• Some brokers worked as sub-brokers under established brokers.

Brokers’ Fees and Commissions:

• Brokers’ fees or commissions were not fixed and varied based on the commodity and the broker's efforts in securing the deal.
• In ordinary transactions, the brokerage was typically two percent of the transaction's value, with one percent charged from each party (buyer and seller).
• Brokers in regular employment received fixed salaries, often supplemented by commissions on certain deals.
• Records from the English Company indicate that brokers’ salaries ranged between Rs. 10 and 38 per month.

Role in Organization of Production:

• Beyond facilitating buying and selling, brokers played a significant role in organizing production.
• Most advances (dadni) made to artisans were facilitated through brokers.

Commercial trade

• Various commercial practices employed in trade and commerce of this period were following:

Bills of Exchange (Hundi)

What was a Hundi?

• A hundi was a paper document similar to a letter of credit or bill of exchange, promising payment of money after a certain period at a specific place, often at a discount.
• It could include insurance (bima) charges based on factors like the value of goods, destination, and means of transport.
• Hundis facilitated the movement of goods by allowing easy transmission of money across different parts of the country.

Reasons for the Widespread Use of Hundis:

• Hundis became popular because they offered a safer and more convenient method of transferring money compared to carrying large sums of cash.
• Merchants could deposit cash with a sarfaf, who would issue a hundi. The merchant would then present it to the sarraf's agent at the destination to encash it.
• Over time, hundis themselves became instruments of transaction, allowing for their presentation against transactions or their buying and selling in the market after endorsement.
• The negotiability of hundis led to situations where they were drawn and honored against other hundis without actual cash payments, making them a medium of payment.

Widespread Use of Hundis:

• The use of hundis was so prevalent that even the imperial treasury and state officials utilized them for transactions.
• Nobles used hundis for paying salaries to soldiers. For instance, in 1599, the state treasury sent Rs. 3,00,000 to the army in Deccan through a hundi.
• Tributes paid by Golkunda and the Ghakkar Chief to the Mughal Emperor were also transferred through hundis.
• Provincial officials were instructed to transfer revenue through hundis, and large sums like the surplus land-revenue from Bengal were sent by hundi.
• Even senior nobles relied on sarrafs to transfer personal wealth using hundis.
• Big merchants and sarrafs had agents in important commercial centers, and sometimes family members acted as agents for each other.
• Some firms even had agents outside the country. In places like the Ahmadabad market, merchants conducted most of their transactions through hundis.

Role of Sarrafs:

• Sarrafs, who specialized in changing money, also dealt with hundis and acted as private banks.
• They accepted deposits from nobles and lent money to traders, creating credit through hundis to supplement money in circulation and finance commerce, especially long-distance and international trade.
• Sarrafs charged a commission on each hundi, and the rate of exchange depended on the interest rate and the period for which the hundi was drawn.
• The period was calculated from the date of issue to presentation for redemption, and rates fluctuated based on money availability at the time of issue and maturity.
• In normal times, rates could vary significantly, such as 1.5 percent for hundi from Patna to Agra and 7-8 percent from Patna to Surat.

Banking

• Sarrafs were involved in issuing bills of exchange and also provided services for safe deposit of money.
• Deposited money was returned to the depositor on demand.
• Depositors earned interest on their deposits, although the interest rate varied over time.
• Historical rates of interest for places like Agra in 1645 and Surat in 1630 were approximately 9.5% per annum.
• Sarrafs would lend money to those in need at a higher interest rate.
• There are instances where state officials disbursed money from the treasury to these bankers, allowing the bankers to keep the interest.
• Tapan Roy Chaudhuri noted that the Jagat Seth of Bengal gained financial prominence partly due to their access to the Bengal treasury for credit.
• Sujan Rai (1694) mentioned that sarrafs who accepted deposits were honest in their dealings, allowing even strangers to deposit large sums for safekeeping and withdraw them at any time.

Usury and Rate of Interest

• Money lending for both personal and commercial purposes was a common practice.
• Much of the trading was based on money borrowed at interest.
• Sarraf(moneylenders) and merchants often engaged in money lending, with a specific group of moneylenders known as Sah.
• Loans were taken for various needs, including peasants borrowing to pay taxes, and nobles or zamindars borrowing for daily expenses.
• Interest rates for smaller loans varied based on individual circumstances such as need, creditworthiness, and bargaining power.
• In Bengal during the eighteenth century, peasants faced high-interest rates of 150% per annum.
• Interest rates for commercial loans differed by region and were often expressed on a monthly basis, indicating short loan durations.
• In Patna around 1620-21, the interest rate was 9% per annum, rising to over 15% by 1680.
• Qasimbazar(Bengal) had rates as high as 15% per annum, while Madras(8% per annum) and Surat(9% per annum) had lower rates.
• Agra and Surat experienced rates between 6% and 12% per annum, while the Coromandal coast faced much higher rates of 18% to 36% per annum.
• The English factory monitored interest rates closely, borrowing from regions with the lowest rates to fund their factories.
• The variation in interest rates across regions indicated a lack of integration in the financial market.

Bottomry

• Long-distance sea voyages came with many uncertainties and risks.
• To address these uncertainties, a practice called 'avog' or bottomry emerged. This was a form of speculative investment that gained popularity during that time.
• In bottomry, money was lent at high-interest rates ranging from 14% to 60%.
• The money was intended to be invested in a cargo destined for a specific location, and the interest rate depended on the level of risk involved.
• Importantly, the lenders assumed all the risks associated with the voyage.

Partnership

• Merchants often pooled their resources to engage in trade, forming partnerships to enhance their trading capabilities.
• Some individuals established joint ventures specifically for overseas trade, collaborating to expand their reach and opportunities.
• During the reign of Akbar, two nobles, Nawab Qutbuddin Khan and Nawab Qilich Khan, are noted for building a ship and engaging in joint trading endeavors.
• Banarsidas, a historical figure, documented his partners' trade in jewels between 1611 and 1616, highlighting the collaborative nature of trade during that period.
• Even brokers participated in joint ventures at times. For instance, in 1662, two brokers from Surat, Chhota Thakur and Somiji, partnered to purchase a ship named Mayflower and equipped her for a voyage.

Insurance (Inland and Marine)

• In ancient India, a limited but important commercial practice wasinsurance, known asbima.
• Sarrafs often took on the responsibility for the safe delivery of goods, acting as a form of insurance.
• English factory records from the time also mention theinsurance of goods, both for inland and overseas transport.
• At sea, both the ship and the goods onboard were insured to protect against losses.
• Factory records even quote specificinsurance ratesfor different goods and destinations.
• By the 18th century, insurance practices were well-established and widely used in commerce.
• Rates for sea voyages were generally higher compared to those for goods transported over land.

Merchants, Trading organisations and the state

• States imposed taxes on trading activities, while merchants faced customs and toll taxes on goods movement.
• Despite these taxes, income from them was minimal compared to land revenue.
• Towns, being commercial hubs, had administrative officers to ensure smooth trade operations.
• The kotwal and his team were responsible for maintaining law, order, and security, creating a favorable business environment.
• Day-to-day business rules were often set by the business community itself through guilds and organizations.
• In Gujarat, these organizations were known as mahajans, which consisted of traders dealing in specific commodities regardless of caste.
• The nagar seth, the town's most influential merchant, acted as a link between the state and the trading community.
• Mahajans resolved disputes among merchants, and their decisions were generally respected.
• The Mughal administration recognized mahajans and sought their assistance in conflicts and administrative matters.
• Merchant organizations were powerful and resisted oppressive actions by town and port officials.
• Instances of hartal, or business closures, were common protests against administrative measures.
• A significant conflict occurred in Surat in 1669, where merchants protested against the governor's tyranny, leading to Imperial intervention.
• Notable merchants like Virji Vohra were involved in addressing grievances against officials.
• Nobles like Shaista Khan and Mir Jumla also engaged in trade, often using their positions for profit.
• Local officers sometimes engaged in business activities through coercive methods.