Indian Mercantile Classes, Banking, Insurance and Credit Systems in Mughal India

Indian Mercantile Classes, Banking, Insurance and Credit Systems in Mughal India

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Mughal India’s commercial world was populated by an extraordinarily broad spectrum of traders — from the small peddler working at the local level to the great merchant engaged in overseas commerce — and sustained by specialised groups of merchants, brokers, and sarrafs operating at every level of the trading chain. As commercial activity expanded, it strengthened existing institutions and gave rise to entirely new ones: sophisticated systems of banking, bills of exchange, money-lending, trading partnership, and insurance. This article examines the personnel of trade — the merchant communities, moneylenders, sarrafs, and brokers who ran this system — before turning to the commercial practices, from the hundi to bottomry, that financed and facilitated trade across Mughal India.

Personnel of Trade

• Merchants, sarrafs, moneylenders, and brokers together ran the commercial and trading machinery of Indian markets, and the rising volume of commercial activity drew a growing number of people into these professions.
  • These trading groups were not, however, divided into rigid, watertight compartments — the same individual often performed two or more of these roles simultaneously.

1) Merchants

• In theory, the vaisyas were considered the caste destined for commerce, but in practice people from a much wider range of backgrounds participated in trade. Certain groups and castes came to dominate particular regions during this period.

Banjaras

• The banjaras appear repeatedly in contemporary sources as a trading community carrying goods between villages, between villages and towns, and even at the inter-regional level — forming a crucial link in rural-urban trade.
  • Banjaras confined their trading activities largely to a limited set of commodities — grain, pulses, sugar, salt, and the like — procuring numbers of pack animals, mainly oxen, and moving from place to place buying and selling.
  • Jahangir, in his Tuzuk-i Jahangiri, records: “In this country the Banjaras are a fixed class of people, who possess a thousand oxen, or more or less, varying in numbers. They bring grain from the villages to the towns, and also accompany armies.”
  • Banjaras typically moved with their families and households in groups known as a tanda, each led by a chief called the nayaka; a single tanda could number as many as 600–700 persons, including women and children, each family bringing its own oxen.
  • The community included both Hindus and Muslims, and some scholars divide banjaras into four groups based on the commodities they traded in: grain, pulses, sugar and salt, and wood and timber.
  • While banjaras operated widely across North India, similar nomadic trading communities existed under other names — the Nahmardis in Sindh, and the Bhotiyas, who traded between the Himalayas and the plains.

Merchants in Different Regions

• The Baniyas, an important vaisya subcaste, were the leading merchants of North India and the Deccan, drawn from both Hindu and Jain communities, the latter concentrated mainly in Gujarat and Rajasthan. Their regional counterparts were the Khatris in Punjab and the Kornatis in Golkunda.
  • The word “Baniya” derives from the Sanskrit vanik, meaning merchant, and many Baniyas carried surnames pointing to their place of origin — the Agarwals from Agroha (in present-day Haryana) and the Oswals from Osi in Marwar.
  • Marwar produced perhaps the largest number of traders, generally known as Marwaris, who were to be found across all parts of India and formed the most eminent merchant community of the period.
  • A close caste bond united these merchants, who maintained their own councils, known as mahajans. Contemporary European travellers — Linschoten (1583–89) and Tavernier (1656–67) — marvelled at the skills of the Baniyas as merchants, praising their accounting and bookkeeping in particular.
  • Unlike the banjaras, Baniyas engaged in all sorts of trading activity: at the village level they traded in grain and agricultural produce, while also acting as moneylenders to peasants and even to state officials and nobles; in the towns they dealt in grain, textiles, gold, silver, jewels, spices, and various other commodities. Some possessed assets worth millions of rupees, and even owned ships. As a community, the Baniyas were nonetheless known for simplicity and frugality.
• In Punjab, the Khatris formed a major trading community — Guru Nanak, founder of the Sikh religion, was himself a Khatri — with many Khatris eventually converting to Islam, so that the community counted Hindus, Muslims, and Sikhs among its members.
• The Multanis were an important trading community of Delhi and parts of Punjab and Sindh from the 13th to 17th centuries.
• The Bohras, mostly Muslim and predominantly urban, were important merchants of Gujarat, with some settlements also in Ujjain and Burhanpur. Prominent Bohra merchants such as Mulla Muhammad Ali and Ahmed Ali possessed assets worth millions of rupees.
• Among Muslims, other significant merchant communities active along the western coast included the Khojahs and Kutchi Memons of Gujarat.

South India

• Various merchant groups played prominent roles in the South. The Chetti — a term derived from the Sanskrit Shreshthi (Seth) — were perhaps particularly wealthy merchants; the traders along the Coromandal coast up to Odisha were generally known as Kling.
  • The Komatis, belonging to a distinct trading caste and mainly Telugu-speaking, worked chiefly as brokers for textiles and as suppliers of goods from the hinterland to the port towns of the southern coast.
  • The Chulias, like the Chetties, were divided into four sub-groups, of which the Marakkayar were the wealthiest, dealing in coastal and Southeast Asian trade. This was a highly mobile group, with settlements as far afield as Ceylon, the Maldives, Malacca, Johore, the Javanese coast, Siam, and Burma.
    • Within India, they were most active around South Coromandal, Madura, Cuddalore, Porto Novo, Nagore, Nagapattinam, and Koyalpatnam, dealing mainly in textiles, arecanuts, spices, grain, dried fish, salt, pearls, and precious metals.
  • The Christian Paravas were active in trade from Coromandal to Malabar and Ceylon, specialising in coastal trading and brokerage.
  • Among Muslim communities, the Golkunda Muslims were involved in overseas shipping, especially prominent south of Madras, where they were the main merchants trading in the Bay of Bengal region, while the Mopilla Muslims, of Indo-Arab origin, were also important merchants in this region.
  • Some Gujarati merchants had likewise established themselves around Madras.

Foreign Merchants

• Foreign merchants featured prominently in nearly all commercial centres of the period, with the Europeans naturally the most conspicuous.
  • Among other foreign traders, the Armenians were the most prominent, dealing in commodities ranging from textiles to tobacco, and settled in Bengal, Bihar, and Gujarat. The Khorasanis, Arabs, and Iraqis also frequented Indian markets.

2) Moneylenders and Sarrafs

• Across much of North India, traditional merchants performed a dual role as both traders and moneylenders.
  • In villages, the traditional Baniya routinely lent money to individual peasants to help them pay land revenue, while in towns and larger commercial centres, merchants likewise acted as moneylenders.
• A further significant category among the personnel of trade was the sarraf, who performed three distinct functions: as a money-changer, as a banker, and as a trader of gold, silver, and jewellery.
  • As money-changers: Sarrafs were considered experts in judging both the metallic purity and weight of coins, and determined their current exchange rate. As Tavernier observed, “In India, a village must be very small indeed if it has not a money changer called ‘Cherab’ [Sarraf], who acts as banker to make remittances of money and issue letters of exchange.”
    • The sarraf was also formally integrated into the Mughal mint establishment: every mint employed a sarraf, who fixed the purity of bullion and verified the purity of coins after minting.
  • As bankers: Sarrafs received deposits and extended loans on interest, and issued (or honoured) bills of exchange, or hundis.

3) Brokers

• Dallals, or brokers, appear to have emerged as a specialised mercantile profession in the wake of the Turkish conquest of North India, functioning as middlemen across a range of commercial transactions. As inter-regional and foreign trade grew, their role became increasingly crucial.
  • Merchants from foreign lands and distant regions depended heavily on brokers, since they lacked familiarity with the local centres of production, patterns of marketing, and even the local language.
  • The need for brokers in India arose primarily because production centres for identical commodities were scattered across the country, individual output at any single centre remained relatively small (with some centres specialising in particular commodities only), and a large number of buyers competed for the same goods in the same markets.
• Numerous references attest to transactions conducted through brokers — the records of the English East India Company, for example, refer repeatedly to brokers employed at its various factories.
  • Fryer (late 17th century) noted that “without brokers neither the natives nor the foreigners did any business,” while Ovington (1690) observed that “for buying and selling company’s goods brokers are appointed who are of the bania caste and are skilled in the rates and value of all the commodities.”
  • Manrique (1640) records around 600 brokers and middlemen operating at Patna, a number likely much larger in bigger commercial centres such as Surat, Ahmedabad, Agra, and other coastal towns. Indian brokers were also to be found operating in foreign ports, including Gombroon (Bandar Abbas), Basra, and Bandar Rig.
  • At times, an entire family — father, son, brother, and nephew — worked together as brokers in partnership. The broker Bhimji Parak, for instance, ran a joint business with his brothers, holding 8 shares himself while Kalyandas held 5, and Kesso and Vithaldas each held 4.
• The historian A. Jan Qaisar classifies brokers into four categories: those employed directly by companies or merchants; those working for several clients simultaneously; those working on an ad-hoc basis as broker-contractors; and state-appointed brokers stationed at commercial centres to register the sale and purchase of goods.
  • Independent brokers can further be grouped according to their area of specialisation — some dealt in only a single commodity, such as silk, saltpetre, cotton, textiles, or indigo, while others handled several commodities at once; still others worked as sub-brokers under a well-established senior broker.
• Brokers’ fees or commission were not strictly fixed, depending instead on the commodity involved and the effort required to strike the deal or procure the goods.
  • In ordinary dealings, brokerage stood at around 2% of the transaction’s value, with 1% charged to each of the two parties (buyer and seller). Brokers in regular employment received fixed salaries along with commission on certain deals — English Company records show brokers’ salaries ranging between Rs. 10 and Rs. 38 per month.
• Beyond assisting clients in procuring and selling goods, brokers played a key role in organising production itself — most of the money advanced to artisans under the dadni system was, in fact, channelled through brokers.

Commercial Trade

Various commercial practices sustained trade and commerce during this period, several of which are examined below.

(1) Bills of Exchange (Hundi)

• The hundi was a paper document — a letter of credit or bill of exchange — promising payment of money after a specified period, at a certain place, and typically at a discount.
  • Hundis often incorporated insurance (bima), charged at varying rates depending on the value of the goods, the destination, and the mode of transport (land, river, or sea). Financial instruments like the hundi facilitated the movement of goods by permitting the easy transmission of money from one part of the country to another.

Why Use of Hundi Became Widespread

• The practice originated in response to the difficulties of carrying large amounts of cash for commercial transactions.
  • A merchant wishing to move cash to a particular destination would deposit it with a sarraf, who would issue a hundi in return; the merchant would then present this hundi to the sarraf’s agent at the destination to encash it — a safe and convenient method of transferring money.
  • Over time, the hundi itself became an instrument of transaction — it could be presented directly against a transaction, or freely bought and sold in the market after endorsement.
  • As Irfan Habib observes, “the negotiability of hundi led to a situation in which large number of hundis were simply drawn and honoured against other hundis without the intermediation of actual cash payments” — in effect, the hundi itself became a medium of payment.

Widespread Use of Hundi

• The use of hundi grew so widespread that even the imperial treasury and the state relied on it, with nobles similarly using hundis to pay soldiers’ salaries.
  • In 1599, the state treasury transferred Rs. 3,00,000 to the army in the Deccan via hundi, and tributes paid by Golkunda (Rs. 10,00,000) and the Ghakkar chief (Rs. 50,000) to the Mughal Emperor were likewise remitted through hundi.
  • Provincial officials were frequently instructed to transfer revenue through hundis — the surplus land revenue of Bengal, or from khalisa lands, amounting to over a crore of rupees, was sent by Jagat Seth via hundi in the middle of the century.
  • Even senior nobles used sarrafs to transfer personal wealth — Muqarrab Khan, governor of Bihar, when transferred to Agra, deposited Rs. 3,00,000 with the sarraf of Patna to be delivered at Agra.
  • Many large merchants issued their own hundis, maintaining agents at major commercial centres — sometimes members of a single family (father, son, brother, nephew) acted as agents for one another, and larger firms even maintained agents outside the country.
  • So brisk was the use of hundis that in the Ahmedabad market, merchants settled payments and adjusted obligations almost entirely through them.

Role of Sarrafs

• Sarrafs who specialised in money-changing likewise specialised in dealing with hundis, effectively functioning as private banks: accepting deposits from nobles and lending money to traders.
  • Through hundis, sarrafs created credit, supplementing the money supply in circulation and financing commerce — particularly long-distance and international trade.
• A commission was charged by sarrafs on every hundi, with the rate of exchange depending on the prevailing rate of interest and the period for which the hundi was drawn — calculated from the date of issue to the date of presentation for redemption.
  • This rate fluctuated further with the availability of money at the time of issue and maturity: when money supply was plentiful, rates fell, and in times of scarcity, rates rose.
  • A sudden surge in payments in one direction could create localised cash pressure on sarrafs at one place while leaving them with a surplus elsewhere — a situation they corrected by discouraging remittances from the cash-poor location and encouraging reverse remittances by adjusting the exchange rate accordingly.
  • To give a rough sense of scale: in normal times, 1.5% was charged on a hundi from Patna to Agra, and 7–8% from Patna to Surat; for a hundi drawn at Ahmedabad for Burhanpur, the rate stood at 7.25% in 1622.

(2) Banking

• Sarrafs, beyond issuing bills of exchange, also accepted money for safe deposit, returning it to the depositor on demand along with interest.
  • Interest rates payable to depositors fluctuated over time — the rates available at Agra (1645) and Surat (1630) worked out to around 9.5% per annum.
  • Bankers, in turn, lent this money to those in need at a higher rate of interest. Several references indicate state officers depositing treasury money with such bankers, retaining the interest earned for themselves.
  • Tapan Roy Chaudhuri, writing on the Jagat Seths of Bengal, notes that “their rise to financial eminence was partly due to the access they had to the Bengal treasury as a source of credit.”
  • Sujan Rai (1694) notes that sarrafs accepting deposits were honest in their dealings — even strangers could deposit large sums for safekeeping and demand their return at any time.

(3) Usury and Rate of Interest

• Money-lending, for both personal and commercial needs, was a well-established practice, with much of trade financed through borrowed money at interest. Generally, both sarrafs and merchants engaged in money-lending, though moneylenders were sometimes referred to distinctly as Sah.
  • Loans served various purposes: peasants borrowed to pay land revenue, repaying at harvest; nobles and zamindars borrowed for day-to-day expenses, repaying upon revenue collection; and commercial borrowing was likewise common.
  • The rate of interest on smaller loans is difficult to establish precisely, since it depended chiefly on the borrower’s need, creditworthiness, and bargaining power. Tapan Roy Chaudhuri shows that peasants in Bengal paid interest as high as 150% per annum in the 18th century. Commercial interest rates varied by region — sources typically quote rates on a monthly basis, which, as Irfan Habib notes, suggests that such loans were generally intended for short periods.
  • Interest rates at Patna stood at around 9% per annum in 1620–21, rising to over 15% by around 1680. At Qasimbazar (Bengal), the rate in 1679 reached as high as 15% per annum, considerably higher than the corresponding rates at Madras (8%) and Surat (9%). Rates at Agra and Surat during the 17th century generally ranged between 6% and 12% per annum, while much higher rates — 18% to 36% — prevailed along the Coromandal coast.
  • The English factory kept a close eye on regional interest rates, borrowing money to supply its outposts from wherever rates were lowest — a pattern that itself suggests the integration of India’s financial markets had not yet fully taken place.

(4) Bottomry

• Long-distance sea voyages carried numerous uncertainties and risks, giving rise to a distinctive practice known as avog, or bottomry — a form of speculative investment quite popular during this period.
  • Under bottomry, money was lent at high rates — ranging from 14% to 60% — to be invested in a cargo destined for a particular port, with the rate of interest reflecting the level of risk involved; the lender bore all the risks of the voyage.

(5) Partnership

• In partnership, merchants pooled their resources to conduct trade, with some forming joint ventures specifically for overseas commerce.
  • Two nobles, Nawab Qutbuddin Khan and Nawab Qilich Khan, are recorded as having built a ship and traded jointly during Akbar’s reign, while Banarsidas described a partnership trading in jewels between 1611 and 1616.
  • Even brokers occasionally formed joint ventures — in 1662, two brokers of Surat, Chhota Thakur and Somji, purchased a ship (the Mayflower) in partnership and fitted her out for a voyage.

(6) Insurance (Inland and Marine)

• Insurance, or bima, was another important commercial practice, though prevalent only on a limited scale.
  • In many cases, sarrafs themselves assumed responsibility for the safe delivery of goods, and English factory records likewise refer to the insurance of goods, both inland and overseas — at sea, both the ship itself and the cargo aboard were insured.
  • Insurance rates are recorded in factory records for different goods and destinations, with sea voyages attracting notably higher rates than goods carried by land. By the 18th century, the practice of insurance had become well established and widely used.

Merchants, Trading Organisations and the State

• The state levied taxes on trading activity, charging merchants customs and toll duties on the movement of goods — though income from these sources remained very small compared to land revenue.
  • Since towns served as the centres of commercial life, administrative officers stationed there were responsible for the smooth conduct of trade, with the maintenance of law and order — a key ingredient of a favourable business environment — falling to the kotwal and his staff.
• The rules and laws governing day-to-day commerce were, however, generally framed by the business community itself, through merchant guilds and organisations.
  • In Gujarat, these organisations were known as mahajans — by the first quarter of the 18th century, as many as 53 mahajans existed at Ahmedabad alone. A mahajan represented an organisation of traders dealing in a specific commodity within a particular area, irrespective of caste, though the term was sometimes also applied to individual big merchants, likely because they headed their own organisations; separate caste-based merchant organisations existed as well.
  • The most influential and wealthy merchant of a town was known as the nagar seth, a position sometimes treated as hereditary, and functioning as an important link between the state and the trading community.
  • Disputes among merchants were generally resolved by the mahajans, whose decisions commanded wide respect. The Mughal administration itself recognised these mahajans, drawing on them to settle conflicts and disputes, or to build support for administrative policy.
• Merchant organisations proved strong enough to resist high-handed or repressive measures by town or port officials, and there are several references to trading organisations calling for hartals — the closing of business establishments — in protest against administrative overreach.
  • The resulting loss of revenue often forced administrators to respond to such protests. One especially serious conflict erupted at Surat in 1669, when a large body of businessmen and their families — some 8,000 people in total — left the city to protest the tyranny of a new governor, settling at Broach and sending petitions to Emperor Aurangzeb. Trading activity in Surat came to a complete halt, prompting swift imperial intervention that resolved the crisis.
  • In 1639, Shah Jahan invited Virji Vohra, one of the greatest merchants of Surat, to personally inquire into merchants’ grievances against the governor of Surat.
  • During the war of succession among Shah Jahan’s sons, Murad raised Rs. 5,50,000 through Shantidas, the nagar seth of Ahmedabad; after Murad’s death, Aurangzeb assumed responsibility for repaying this sum.
• Despite their considerable wealth — Virji Vohra is said to have left an estate worth Rs. 80,00,000 at his death — Indian merchants, as a class, showed little interest in politics.
  • While merchants largely stayed away from court politics, nobles, by contrast, did venture actively into trade — many using their official position to corner trading profits for themselves.
    • Shaista Khan attempted to establish a monopoly over several commodities, particularly saltpetre; Mir Jumla, another prominent noble, was himself a diamond merchant; and a number of subordinate officers at the local level likewise engaged in business, often through coercive methods.

In summary, the commercial world of Mughal India rested on a remarkably diverse cast of trading communities — from the nomadic banjaras and the caste-based networks of Baniyas, Khatris, and Bohras, to the maritime merchant groups of the Coromandal and Malabar coasts and the foreign traders settled in Bengal and Gujarat — bound together by the specialised roles of sarrafs and brokers. Their activities, in turn, gave rise to a genuinely sophisticated financial architecture: the negotiable hundi, organised deposit-banking, calibrated interest rates, speculative bottomry, commercial partnerships, and marine insurance. And crucially, this entire system was regulated not primarily by the state but by the merchants’ own self-governing institutions — the mahajans and the nagar seths — whose authority the Mughal administration itself was often obliged to recognise and work through.