Question

What do you understand by the term hundi how was this practice used in trade and commerce in medival India

Answer 1

A Hundi is a financial instrument that developed in Medieval India for use in trade and credit transactions. Hundis are used as a form of remittance instrument to transfer money from place to place, as a form of credit instrument or IOU to borrow money and as a bill of exchange in trade transactions. The Reserve Bank of India describes the Hundi as "an unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order."[1]The operation of the Hundi system has many parallels with the Hawala system also widely used in Africa, India and the Middle East.

Hundis have a very long history in India. Written records show their use at least as far back as the sixteenth century. The merchant Banarasi Das, born 1586, received a hundi for 200 rupees from his father to enable him to borrow money to start trading.[2]

During the colonial era, the British government regarded the hundi system as indigenous or traditional, but not informal. They were reluctant to interfere with it as it formed such an important part of the Indian economy and they also wished to tax the transactions taking place within the system.[3] Official hundi forms were produced incorporating revenue stamps bearing the image of British monarchs, including Queen Victoria, and disputes between merchants often entered the court system, so in no way was the system an underground one even though it did not take place through normal banking channels.