Skip to main content Accessibility help

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


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.

Corresponding author
Hide All
Adas, M. (1971), The Burma Delta: Economic Development and Social Change on an Asian Rice Frontier, 1852–1941, Madison: University of Wisconsin Press.
Baker, C. (1984), An Indian Rural Economy, 1880–1955: The Tamilnad Countryside, Oxford: Clarendon Press.
Banking and Monetary Statistics of India. (1954), Reserve Bank of India, Bombay.
Beck, T. (2002), ‘Deposit Insurance as Private Club: Is Germany a model?’, Quarterly Review of Economics and Finance, 42 (4): 701719.
Beteille, A. (1996), ‘Varna and Jati’, Sociological Bulletin, 45 (1): 1527.
Boot, A. (2000), ‘Relationship Banking: What do we know?’, Journal of Financial Intermediation, 9.
Briones, I. and Rockoff, H. (2005), ‘Do Economists Reach a Conclusion on Free-Banking Episodes?’, Econ Journal Watch, 2 (2): 279324.
Buchanan, J. (1965), ‘An Economic Theory of Clubs’, Economica, 32 (125): 114.
Calomiris, C. and Kahn, C. (1996), ‘The Efficiency of Self-regulated Payment Systems: Learning from the Suffolk System’, Journal of Money, Credit and Banking 28 (4): 766797.
Chakravarti, N. (1971), The Indian Minority in Burma: The Rise and Decline of an Immigrant Community, Oxford: Oxford University Press.
Chandavarkar, A. (2008), ‘Money and Credit, 1858–1947’, The Cambridge Economic History of India, vol. 2, c. 1757–2003, New Delhi: Orient Longman.
Chandrasekhar, S. (1980), The Nagarathars of South India: An Essay and a Bibliography on the Nagarathars in India and South-East Asia, Madras: Macmillan India Press.
Chapman, S. (1984), The Rise of Merchant Banking, London: George Allen & Unwin.
Curtin, P. (1984), Cross Cultural Trade in World History, Cambridge: Cambridge University Press.
De Roover, R. (1963), The Rise and Decline of the Medici Bank, 1397–1494. Cambridge: Harvard University Press
Dowd, K. (1989), The State and the Monetary System, Hemel Hempstead: Philip Allan, and New York: St. Martin's Press.
Dowd, K. (1991), ‘The Evolution of Central Banking in England, 1821–90’ in Capie, F. and Wood, G. E. (eds.), Unregulated Banking: Chaos or Order?, London: Macmillan.
Dowd, K. (ed). (1992), The Experience of Free Banking, London: Routledge.
Dowd, K. (1994), ‘Competitive Banking, Bankers’ Clubs, and Bank Regulation’, Journal of Money, Credit and Banking, 26 (2): 289308.
Evers, H. and Pavadarayan, J., (2006), ‘Religious Fervour and Economic Success: The Chettiars of Singapore’, in Sandhu, K. S. and Mani, A. (eds.), Indian Communities in South-East Asia, Singapore: Institute of South-east Asian Studies.
Goldthwaite, R. (1987), ‘The Medici Bank and the World of Florentine Capitalism’, Past and Present, 114 (114): 331.
Goodhart, C. (1987), ‘Why do Banks Need a Central Bank?’, Oxford Economic Papers, New Series, 39 (1): 7589.
Goodhart, C. (1988), The Evolution of Central Banking, Boston: MIT Press.
Gorton, G. and Mullineaux, D. (1987), ‘The Joint Production of Confidence: Endogenous Regulation and Nineteenth-Century Commercial Bank Clearinghouses’, Journal of Money, Credit, and Banking, 19 (19): 457468.
Gubbay, M. (1927), Indigenous Indian Banking: A Paper read at the Royal Society of Arts, London, Bombay: D.B Taraporevala Sons and Co.
Ito, S. (1966), ‘A Note on the ‘Business Combine’ in India: with Special Reference to the Nattukottai Chettiars’, The Developing Economies, 4 (3): 367380.
Jain, L. (1929), Indigenous Banking in India, London: Macmillan and Co.
Keynes, J. (1913), Indian Currency and Finance, London: Macmillan and Co.
Krishnan, V. (1959), Indigenous Banking in South India, Bombay: State Co-operative Union.
Lamb, H. (1955), ‘The Indian Business Communities and the Evolution of an Industrialist Class’, Pacific Affairs, 28 (2): 101116.
Mahadevan, R. (1978a), ‘Pattern of Enterprise of Immigrant Entrepreneurs: A Study of Chettiars in Malaya, 1880–1930’, Economic and Political Weekly, 13 (4/5): 146152.
Mahadevan, R. (1978b), ‘Immigrant Entrepreneurs in Colonial Burma–An Exploratory Study of the Role of Nattukottai Chettiars of Tamil Nadu, 1880–1930’, Indian Economic and Social History Review, 15 (329): 329358.
Masters, A. (1957), ‘The Chettiars in Burma: An Economic Appraisal of a Migrant Community’, Population Review, 1 (1).
McNutt. (1999), ‘Public Goods and Club Goods’, Encyclopedia of Law and Economics, 927–951.
Menon, R. (1985), ‘Banking and Trading Castes in the Colonial Period: The Case of the Nattukotai Chettiars of Tamil Nadu’, South Asia Bulletin, 5 (2): 1926.
Morrison, A. and Wilhelm, W. (2004), ‘Partnership Firms, Reputation, and Human Capital’, American Economic Review, 94 (5): 16821692.
Mukherjee, A. (2011), ‘Transition of Credit Organizations: Caste Bankers in Colonial India’, Working Paper.
Mullineaux, D. (1987), ‘Competitive Monies and the Suffolk Bank System: A Contractual Perspective’, Southern Economic Journal, 54 (4): 884897.
Nair, M. (2011), ‘Enforcement of Nineteenth Century Banking Contracts using a Marriage Rule’, Quarterly Review of Economics and Finance, 51 (4): 360367.
Nair, M. (2013), ‘Fractional Reserves and Demand Deposits: Historical Evidence from an Unregulated Banking System’, The Independent Review, 18 (1): 7788.
Padgett, J.F. (2001), ‘Organizational Genesis, Identity and Control: The Transformation of Banking in Renaissance Florence’, Networks and Markets. Russell: Sage Foundation Publications.
Report of the Burma Provincial Banking Enquiry Committee. (1930), 3 vols published by the Government of Burma.
Report of the Madras Provincial Banking Enquiry Committee. (1930), Vol 1, published by the Government of India.
Roy, T. (2010), Company of Kinsmen: Community and Enterprise in South Asian History 1700–1940, Oxford: Oxford University Press.
Rudner, D. (1994), Caste and Capitalism in Colonial India: The Nattukottai Chettiars, Berkeley: University of California Press.
Sandler, T. and Tschirhart, J., (1997), ‘Club Theory: Thirty years later’, Public Choice, 93 (3–4): 335355.
Selgin, G. (1988), ‘Competitive Monies and the Suffolk Bank System: Comment’, Southern Economic Journal, 55 (July): 215219.
Selgin, G. and White, L. (1987), ‘The Evolution of a Free Banking System’, Economic Inquiry, 25 (July): 439457.
Shenoy, B. (1941), Ceylon Currency and Banking, London: Longmans, Green and Company.
Smith, V. (1990), ‘The Rationale of Central Banking and the Free Banking Alternative’, Liberty Fund, Indianapolis, IN.
Srinivas, M. (1962), Caste in Modern India and Other Essays, Bombay: Asia Publishing House.
Timberlake, R. (1984), ‘The Central Banking Role of Clearinghouse Associations’, Journal of Money, Credit and Banking, 16 (1): 115.
Thapar, R. (2003), The Penguin History of Early India: From the Origins to AD 1300, London, UK: Penguin Publishing.
Thapar, R. (2004), Ancient Indian Social History: Some Interpretations, Delhi: Orient Longman.
Thaplyal, K. (1996), Guilds in Ancient India: A Study of Guild Organization in Northern India and Western Deccan from circa 600 B.C. to circa 600 A.D, New Delhi: New Age International Publishers.
Tun Wai, U. (1953), Burma's Currency and Credit, London: Orient Longmans.
Tun Wai, U. (1956), ‘Interest Rates in the Organized Money Markets of Underdeveloped Countries’, Staff Papers- International Monetary Fund, 5 (2): 249278.
Turnell, S. (2009), Fiery Dragons: Banks, Moneylenders and Microfinance, Burma: Nordic Institute of Asian Studies Press.
Weerasooria, W. (1973), The Nattukkottai Chettiars: Merchant Bankers in Ceylon, Sri Lanka: Tisara Prakasakayo.
White, L. (1984), Free Banking in Britain: Theory, Experience and Debate, 1800–1845, Cambridge: Cambridge University Press.
White, L. (1989), Competition and Currency: Essays on Free Banking and Money, New York: New York University Press.
White, L.H. (1999), Theory of Monetary Institutions, Wiley-Blackwell.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Institutional Economics
  • ISSN: 1744-1374
  • EISSN: 1744-1382
  • URL: /core/journals/journal-of-institutional-economics
Please enter your name
Please enter a valid email address
Who would you like to send this to? *


Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed