Transition of Credit Organizations: Caste Bankers in Colonial India

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.