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

Published online by Cambridge University Press:  28 December 2015

MALAVIKA NAIR
MALAVIKA NAIR*
Affiliation:
Johnson Center for Political Economy, Sorrell College of Business, Troy University, Troy, AL 36081, USA
*
*Email: mnair@troy.edu
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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.

Type
Research Article
Information
Journal of Institutional Economics , Volume 12 , Issue 3 , September 2016 , pp. 677 - 698
Copyright
Copyright © Millennium Economics Ltd 2015 

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