What is importance and function of Indigenous Bankers?

The indigenous bankers occupy an important place in the Indian money market and play
a vital role in financing the internal trade. They are especially popular in the areas, which lack
joint stock banks or are not properly served by these banks. Although with the growth of joint
stock banking in the country, the activities of the indigenous bankers have declined considerably,
still these bankers have control over a good deal of financial business.
The popularity of indigenous bankers is mainly due to the following reasons:
(a) They provide prompt and flexible credit,
(b) They give loans to the small productive units not fully catered by the commercial banks,
(c) They have cordial relationship with the customers,
(d) They keep close contact with their customers and remain fully acquainted with their problems
and financial requirements;
(e) They are not merely bankers to their customers, but are also their friends and advisers.

The main functions of the indigenous bankers are as follows:

1. Accepting Deposits:
The indigenous bankers accept deposits from the public. These deposits are of two types:

the deposits which are repayable on demand and

the deposits which are repayable after a fired period. The indigenous bankers pay higher
rate of interest than that paid by the commercial banks.

2. Advancing Loans:
The indigenous bankers advance loans to their customers against all types of securities such as
land, crops, gold and silver, etc. They also give credit against personal security. They provide
loans to small industrialists who cannot fulfill the necessary loan conditions of commercial
banks.
3. Business in Hundies:

The indigenous bankers deal in hundies. They write hundies, buy, and sell hundies. They also
discount hundies and, thereby, meet the financial needs of the internal traders. They also transfer
funds from one place to another through discounting of hundies.
4. Non-Banking Functions:
Most of the indigenous bankers also carry on their non-banking business along with the banking
activities,
(a) They generally have their retail trading business,
(b) Sometimes, they act as agents to large commercial firms and earn income in the form of
commission,
(c) They also participate in speculative activities.
Hundies
Hundis refer to financial instruments evolved on the Indian sub-continent used in trade and credit
transactions. They were used

As remittance instruments (to transfer funds from one place to another),

As credit instruments (to borrow money [ious]),

For trade transactions (as bills of exchange).

Technically, a Hundi is 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. Hundis, being a part of the informal
system have no legal status and are not covered under the Negotiable Instruments Act, 1881.
Though normally regarded as bills of exchange, they were more often used as equivalents of
cheques issued by indigenous bankers.
Hundis: Specimens

British India Hundi

British India Hundi