Sunday, 1 September 2013

OCCUPATIONS - Money Lending

Money Lending

In 18th century, land revenue was the only definite source of funds for the rulers. The rulers assigned revenue rights of a village or a group of village to rent collector in lieu of the latter’s guarantee to pay a fixed sum of money to the royal treasury. This enabled the ruler to dispense with elaborate revenue-collection machinery and gave free hand to the rent collector to collect maximum possible revenue.

The rulers however didn’t deal with the rent collectors directly and positioned a group of merchant money lenders (potedars) between themselves and the collectors.

The rulers used to borrow money from potedars and issue them money warrant along with the letter of credit. This letter used to be an order to the rent-collector to reimburse the money to the potedar.

Potedari was the earliest form of banking and finance wherein the money-lenders and rent-collectors used to collect money from people and also extend loans.
Rich merchants who used to lend money to the kings were known as potedars.
The word potedar was used by the Peshwa rulers and later picked up by the gaekwads who collectively ruled over Saurashtra, Malwa, Khandesh, Marathwada etc in present day Gujarat and Maharashtra.

Poddar” a popular last named used by prominent Mawari families suggest that they once used to function as potedars to such rulers.

During the same period at the other end of the country the erstwhile princly state of “Cooh Behar” a part of modern day West Bengal followed a similar system of land revenue which facilitated Marwari merchants in the region.

A “jote” was a revenue paying estate and the owner of it was caled a “jotedar”. Jotes could be had in the estate of Cooch Behar on payment of a fixed revenue to the maharaja who was the owner of the soil. The state had always recognized the right of ownership, subject to the payment of revenue at the prevailing rates, although there was no written code extant from which such a right could be proved.

Apart from jotedars, “chukhanidars” were immediate tenatns to the raja.  The chukhanidar was an immediate sub-tenant or an under-tenant of a jotedar, a holder of certain portion of the jote or farm.

This kind of holding was known as a “chukhani” which was saleable under tenure, subject to the persmission of jotedar for transfer.  A chukhanidar had the right to occupancy and he paid to the jotedar as rent, a sum not exceeding 25% over the rates that the jotedar paid to the state.

Chokhani” again a popular last name in Marwari’s indicate their use of land-revenue as an instrument for money-lending activity.
Crop-Financing or money-lending for cash crops like Opium, Jute and Cotton against land as a collateral gained popularity in British controlled territories. Same would be discussed in my next posts. 


Here is an excerpt from a Book titled "Govind Narayan's Mumbai: An Urban Biography from 1863" which gives a vivid description of the Marwari Moneylenders operating in the city. 

There are many Marwari sawakars who number over 1500. They road door to door with their books. These Marwaris lend amount ranging from eight annas (equivalent to 1/2 Rupee) to over 10,000-15,000 rupees to people. They seem to have a facility and the courage to lend money. However poor or bankrupt one may be, they are willing to lend some amount of money. In return they expect 10 for 1 or maybe 25 for 5. There have been instances where as sum of 4 rupees has been lent, made up to 5 ruppes using their sawai practice of adding a 1/4 to the principle, and 4 different bonds are issued. 

Given below is a chart of the money which is to be returned to a principal amount of Rs.4

Number of Days
Principal + Interest
 5
 30
 25
 60
 50
 90
 75
 120
 100

       According to the above calculations the rate of interest charged by these lenders was an astronomical 7100%

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