Caste as self-regulatory club: evidence from a private banking system in nineteenth century India. Issue 3 (28th December 2015)

• Record Type: Journal Article
• Authors: NAIR, MALAVIKA
• Is Part Of: Journal of institutional economics. Volume 12:Issue 3(2016)
• Page Start: 677
• Page End: 698
• Publication Date: 2015-12-28
• Subjects: Institutional economics -- Periodicals; 330.1552
• DOI: 10.1017/S1744137415000466
• Languages: English
• ISSNs: 1744-1374

Abstract

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.