Discuss the development of indigenous banking system in Indian subcontinent.
The following points highlight the developments of indigenous banking system in Indian Subcontinent:
a. Metals as Money: Initially, the metals were used as money due to the high durability and divisibility. In fact, the use of metallic money boosted the number of transactions and accelerated the economic activities.
b. Use of Hundi and Chitti: Hundi and Chitti were financial instruments which were used for carrying out trade and credit transactions during the Medieval period in India. A Hundi is primarily an unconditional contract or order which warrantees a monetary payment which can be transferred by valid negotiation.
c. Development of banks: With the use of currency and letter of credit, the Indian banking system started lending money and financing the domestic and foreign trade in India. Along with this, the development of banking system also encouraged people to deposit precious metals with the lending authorities such as bankers, Seths, etc. and gradually, money became an instrument of exchange.
d. Agriculture and livelihood opportunities: In the Indian subcontinent, agriculture and the domestication of animals were important sources of livelihood. Along with this, people also relied on other sources of earning a livelihood such as weaving cotton, dyeing fabrics, making clay pots, utensils, and handicrafts, sculpting, cottage industries, masonry, manufacturing, transports etc. This helped people in generating surpluses which could be further saved for investment purposes.
e. Role of Intermediaries: The intermediaries and other institutions such as Jagat Seths, developed and exercised great control and influence during the days of Mughals and East India Company. They played an important role in the promotion of trade, commerce and banking in India.
f. Credit transactions: With the development of credit facilities and availability of loans and advances, the commercial activities and operations enhanced and the Indian subcontinent started enjoying the benefits from a favourable balance of trade.
g. Evolvement of indigenous banking: The indigenous banking system not only benefitted the manufacturers or traders by facilitating trade but they also helped those merchants with additional funds who were looking for expansion and development. Later on, with the evolvement of commercial and industrial banks, the banking system also started providing both short term and long term loans to finance the agricultural projects in India.