Hundi a form of informal monetary instruments developed under the economic expansion and consequent monetisation processes of the Mughal economy. It referred to financial instruments used in trade and credit transactions. Hundis were used as remittance instruments (to transfer funds from one place to another); as credit instruments (to borrow money; and for trade transactions (as bills of exchange). Technically, a hundi is an unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order.
'Hundis, being a part of the informal system have no legal status and are not covered under the negotiable instruments Acts of government. Though normally regarded as bills of exchange, they were more often used as equivalents of pay order cheques issued by indigenous bankers. The leading banking houses maintained kuthis or branch offices in various trading centres of the empire. The house of Jagath sheth is said to have maintained branch offices in all parts of commercial India. But their financial power began to decline under the impact of the establishment of the colonial rule in Bengal and became bankrupt by the end of the eighteenth century.
Hundi was, and still is, a private mechanism to transfer money from one place to another. It also served as a short-term commercial credit. Though hundi was a private mechanism of transferring money, the Mughal imperial fiscal officials frequently used hundis for transfer of funds from one region to another. The nobles and provincial mansabdari used hundis from their jagirs to their stations.
In the monetization processes of the economy, the Mughal government developed an elaborate structure of credit. Most institutions of this credit structure fall within the hundi system. Hundi was the main medium for big transactions. Coins were then the main medium for transactions. Since it was both difficult and risky to dispatch coins in bulk from one place to another, hundi made the most reliable and safe method for the long-distance trade. Hundi also played an important role in keeping the coin supply of a place undisturbed.'
In the seventeenth century, the land revenue from Bengal was dispatched to Delhi by qafilas or train of bullock-carts. Such a system was both expensive and unsafe. Furthermore, the local economy suffered from the shortage of coins for a long time since the royal remittance. The problem was solved by the hundi system. Over time, a market for hundis are seen to have developed. The traders made extensive use of it to carry on trade. Among those traders most famous was the house of jagat sheth Mahtab Chand during the later Mughal period. In the country side, the hundi business was most commonly conducted by the shroffs or mofussil bankers. They demanded a commission for issuing hundi. The shroffs accepted deposits from common people payable on demand and for which the shroffs paid some interest to depositors. The whole of the Mughal empire was connected with the network of hundi houses.
The hundi system not only contributed to the rise of a monetized economy but also helped long distance trade and military operations. But most significant contribution of hundi system was the facility that it offered to establish trade relations with the foreigners. Almost all the countries of maritime Europe came to Bengal in the 18th century for trade and commerce. The hundi system facilitated their business contact with the local merchant houses. The house of Jagat Sheth' was the biggest hundi house in the mid-eighteenth century India. The house both issued and received hundis. The rise of modern banking system in Bengal from the late 18th century led to the decline of hundi system from the early nineteenth century. The most urgent hundi was called Darshani Hundi, that is, a hundi which must be cleared the moment it was produced. A class in the credit market called hundiwala developed in the eighteenth century. Even now the hundi system is in operation in the informal money market. Often it is being mainly resorted to for illegal business transactions and remittances.
A Representative Darshani Hundi
Early 20th Century
Nisani Hamare Gharu khate nam mandna.
Dastkhat Brijkishore Bhargava ke hundi likhe mujib sikar desi.
Sidh sri Patna subhastane chiranjeeva bhai Rikhabchand Bridhichan yog sri Jaipur se likhi Brijkishore Bhargava kee asis banchna, apranch hundi aik rupia 2,000 akshare rupia do hazar ke nime rupia aik hazar ka duna yahan rakha sah Sri Punamchandji Harakchandji pas miti Mangsir bad baras (12th) puga turat sah-jog rupia chalan ka dena. Sambat 1990, Miti Mangsir bad baras,
Neme Neme rupia panchsau ka chauguna pura do hazar kardejo.
‘1’ Chiranjeeva Rikhabchand Bridhichand, Patna.
Place it to the debit of our account.
Signature: Honour the Hundi written by Brijkishore Bhargava.
Greetings to Messrs. Rikhabchand Bridhichand, son of the fair city of Patna on whom the Hundi for Rs 2,000 (in words Rupees Two thousand only) is written by Brij Kishore Bhargava from Jaipur. Rupees one thousand if doubled make the sum of the hundi. The hundi has been drawn from here in favour of Messrs. Punamchand Harackchand on 12th Mangsir 1990, which please honour on presentation in the current money.
Rs 2,000, four times of Rs 500 make the sum of Rs 2,000 for which the hundi is drawn. [Sirajul Islam]