Agency House authorised European merchant house trading in Bengal with license from the east india company. In exchange of stipulated tributes, the company, under the Royal Charter Acts, had enjoyed the monopoly right to trade in the waters east of the Cape of Good Hope. No other British subject could enter the region without obtaining a license from the company. In the contemporary maritime society of Britain, such licensees passed by the name of 'free traders'. Until the establishment of its kingdom in Bengal the East India Company seldom allowed a free trader to come to Bengal and compete with it in the market. But the situation changed after the assumption of the diwani and the subsequent foundation of the colonial state in Bengal.
The volume and value of the foreign trade of Bengal increased phenomenally since the 1760s. Neither the company's manpower nor its running capital was enough to take advantage of the new opportunities available. The problem of remitting home safely and secretly the ill-gotten fortunes made by the company servants, now masters of the country, presented another practical difficulty. Remittance through continental agents was not always safe and profitable. Another practical difficulty was that the civilians and military officers who, after retirement, wanted to stay back in India as merchants and traders had to be obliged. Under the circumstances, the company resolved to issue licenses to a certain number of European merchants to share the opportunities presented by the company state.
In the 1760s, there were a limited number of free traders that had obtained the company's license for trading in the country on their own. They entered the privileged inland trade by buying dastaks from the servants of the company. However, with the abolition of the privileged trade in 1767, they concentrated on the export trade only. Marketing the goods of Bengal in the world market appeared as a new bonanza for private traders. Thus the number of free traders started to increase. The company's new commercial policy, from 1775, of procuring goods through fixed contractors, instead of native dadni merchants, provided another El Dorado to the private traders.
There was immense competition in England for free-trade licenses. Nevertheless only those traders, who were closest to the company lobby at Leadenhall Street (East India Company headquarters), actually got them. All these free traders and mariners used to come to Bengal as individuals and were mostly empty-handed when they arrived, but within a short time they were able to build big businesses here. The savings and plundering of the company servants were their main sources of capital. Most of the free merchants set up Agency Houses. Initially, their principal business was to collect the savings of civilians and military officers and to invest them in profitable concerns. Most profitable was the investment in Bengal inland trade and the China trade.
Their other profitable business activities included acting as agents to the company in procuring goods from the local market and bailing and shipping them, clearing company's incoming cargoes, remitting the profits made by the company servants in the forms of cargoes and bills of exchanges, investing capital accumulated through deposits of the Anglo-Indians, standing sureties and securities of all commercial parties including the East India Company, and so on. The Agency Houses made their profit through commission and by investment of other people's money. From the beginning of the nineteenth century, particularly after 1813 when India entered the free trade world, the Agency Houses expanded their business to many more areas, such as, opium, indigo, tea, shipbuilding, coastal trade, banking, insurance, steam navigation, foundry, journalism, and so on.
All the free traders and free mariners were organised into five Agencies in 1775. The number of Agencies increased to 15 in 1790 and 32 in 1813. The majority of the Agency Houses were British, particularly Scottish Britons, and their partners were mostly former civilians and military officers stationed in the Bengal Presidency. The dominance of the Agency Houses declined with the growth of more formal financial institutions from the 1830s. In fact, these new formal institutions were, in the main, the transformed versions of the former Agency Houses.
The rise of Agency Houses contributed to the decline of the banian (bania) houses. The work that the Agency Houses had been doing from the 1770s was formerly done by local banians, who acted as sole brokers of the European maritime parties. The East India Company employed banians for business transactions at the local level. Every company servant indulging in private trade had banians to transact his businesses. Obviously, the growth of the European Agencies meant the decline of the native banian entrepreneurs. The banians were the forerunners of modern capitalists. But before the banian capital could strike a transition to modern capitalism, the European capital in the form of Agency Houses intervened and compelled banians to withdraw from their entrepreneurial career. Subsequently, most of the former banians used their frozen capital to buy zamindaris from the land market that was created by the permanent settlement system. [Sirajul Islam]