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Caste as self-regulatory club: evidence from a private banking system in nineteenth century India

  • MALAVIKA NAIR (a1)
Abstract

The Chettiar banking system evolved and functioned in the absence of a government sponsored central bank in 19th-century India. I find that the underlying common social institution of caste was crucial for the workings of the banking system and effectively acted as a club. Exclusion was achieved by restricting membership by birth and the practice of endogamy. These mechanisms created the necessary incentives to provide meaningful rules as well as their enforcement. I describe and analyze the privately provided self-regulatory mechanisms of clearinghouses, inter-bank lending and information sharing. The Chettiar banking system thus adds to existing instances of self-regulated banking as well as points to the economic underpinnings of caste as an institution.

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*Email: mnair@troy.edu
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Journal of Institutional Economics
  • ISSN: 1744-1374
  • EISSN: 1744-1382
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