Mahajan a Sanskrit term meaning 'a great man'. But technically, it applies to a merchant, a dealer, a banker, a money changer, and a moneylender of colonial and pre-colonial Bengal. Even today the term has a wide range of applications. In Bengal social and economic history mahajan has a relative meaning. The owner of means of production and distribution is a mahajan in relation to one having subordinate role in the process. A weaver is a mahajan in relation to others if they enter into a subordinate relation with him by borrowing his tools or space or any other means of production and distribution from him. A grocer has a mahajan if his business depends on the loans from him. All creditors were mahajans in the colonial and pre-colonial times. Creditors are called mahajans even today.
But formerly the term mahajan was most appropriately applied to people hereditarily engaged in money changing and money lending. Before the introduction of token currency in the late nineteenth century, Bengal monetary system was characterized by the presence of many kinds of currencies which were standardized to one single legal currency through an intricate system of batta. The batta market was controlled by the banians and mahajans. In fact, banians were also called mahajans. Besides controlling the batta market, mahajans also bought and sold bills of exchange. Revenue collections were regularly transmitted from the mofussil to the sadar or headquarters or to other district authorities by bills of exchange. The inter-district merchants settled their accounts mostly through the intermediation of mahajans who bought or sold bills of exchange on their behalf.
Besides the bills of exchange and batta markets, the mahajans also controlled the agricultural credit market. In the pre-colonial era, the raiyats used to receive takavi at times of distress caused by natural calamities and there was also the system of remission of rent on the part of zamindars. But the system of takavi and remission of rent was discontinued during the British era. In the absence of institutional credit system, the raiyats had no other alternative but to borrow money from mahajans. In the nineteenth century, most landholders also practiced mahajani business. They lent agricultural loans to their raiyats and collected them with interest along with the rents. This practice had also enhanced their control over the tenantry.
The increasing commercialization of agriculture under the British regime had caused a shift of Bengal agriculture from subsistence economy to that of the market. Such a shift was mainly responsible for increase in the volume of rural indebtedness and the consequent preponderance of the mahajan class in the society and economy of Bengal. The mahajani dominance reached its peak in the early twentieth century when the larger segment of the rural economy is said to have been irretrievably mortgaged to mahajans. The money market shrank due to the Great Depression of the 1920s and early 'thirties and it led to the rural indebtedness to all time high. Then the Bengal peasantry in general got indebted to mahajans. The government tried to overcome the crisis by enacting Bengal Moneylenders Act (1933) and Bengal Agricultural Debtors Act (1935). debt settlement boards were established in every union of Bengal districts under the Bengal Agricultural Debtors Act. The mahajans and debtors were called in before the boards, which tried to settle debts by scaling down the accumulated dues from debtors. Bengal Moneylenders Act was amended in 1940 in order to make it more effective as regards relieving the indebted peasantry.
Mahajani as an institution in Bangladesh society and economy declined during Pakistan period and further declined since the emergence of Bangladesh as an independent state. Now the state policy of creating large scale institutional credit facilities and the participation of NGOs in the rural uplift and development of human resources, and most importantly the micro-credit programmes of the grameen bank 'and' BRAC as well of the government have made the traditional mahajani institution obsolete. [Sirajul Islam]
See also informal credit.