A hundi or hundee is a

financial instrument Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash (currency), evidence of an ownership interest in an entity or a contractual right to receive or deliver in the form ...

that developed in

Medieval India Medieval India refers to a long period of Post-classical history of the Indian subcontinent between the "ancient period" and "modern period". It is usually regarded as running approximately from the breakup of the Gupta Empire in the 6th cent ...

for use in trade and credit transactions. Hundis are used as a form of

remittance A remittance is a non-commercial transfer of money by a foreign worker, a member of a diaspora community, or a citizen with familial ties abroad, for household income in their home country or homeland. Money sent home by migrants competes wit ...

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 A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, whose payer is usually named on the document. More specifically, it is a document contemplated by or consisting of a ...

in trade transactions. The

Reserve Bank of India The Reserve Bank of India, chiefly known as RBI, is India's central bank and regulatory body responsible for regulation of the Indian banking system. It is under the ownership of Ministry of Finance, Government of India. It is responsible for ...

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."

History

Hundis have a very long history in India. Written records show their use at least as far back as the Twelfth 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. 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.Between informality and formality: Hundi/Hawala in India
Marina Martin,

London School of Economics , mottoeng = To understand the causes of things , established = , type = Public research university , endowment = £240.8 million (2021) , budget = £391.1 millio ...

India Blog, 16 January 2013. Retrieved 26 November 2013. 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.

Types of hundi

*Sahyog Hundi: This is drawn by one merchant on another, asking the latter to pay the amount to a third merchant. In this case the merchant on whom the hundi is drawn is of some 'credit worthiness' in the market and is known in the bazaar. A sahyog hundi passes from one hand to another until it reaches the final recipient, who, after reasonable enquiries, presents it to the drawee for acceptance of the payment. Sahyog means co-operation in Hindi and Gujrati, the predominantIndian Encyclopaedia, Volume 1 - The Indian Encyclopaedia: Biographical, Historical, Religious, Administrative, Ethnological, Commercial and Scientific. Subodh Kapoor. Cosmo Publications 2002. 318 pag. ISBN 8177552570, ISBN 9788177552577 languages of traders. The hundi is so named because it required the co-operation of multiple parties to ensure that the hundi has an acceptable risk and fairly good likelihood of being paid, in the absence of a formalized credit monitoring and reporting framework. *Darshani Hundi: This is a hundi payable on sight. It must be presented for payment within a reasonable time after its receipt by the holder. Thus, it is similar to a demand bill. *Muddati Hundi: A muddati or miadi hundi is payable after a specified period of time. This is similar to a time bill. There are few other varieties;Marina Martin; Hundi/Hawala: The Problem of Definition; Modern Asian Studies, Vol. 43, No. 4 (Jul., 2009), S. 909–937 the Nam-jog hundi, Dhani-jog hundi, Jawabee hundi, Jokhami hundi, Firman-jog hundi, etc. * Nam-jog hundi - such a hundi is payable only to the person whose name is mentioned on the Hundi. Such a hundi cannot be endorsed in favour of any other person and is akin to a bill on which a restrictive endorsement has been made. * Furman-jog Hundi - such a hundi can be paid either to the person whose name is mentioned in the hundi or to any person so ordered by him. Such a hundi is similar to a cheque payable on order and no endorsement is required on such a hundi. * Dhani-jog Hundi - when the hundi is payable to the holder or bearer, it is known as a dhani jog hundi. It is similar to an instrument payable to bearer. * Jokhim-Hundi - normally a hundi is unconditional but a jokhim hundi is conditional in the sense that the drawer promises to pay the amount of the hundi only on the satisfaction of a certain condition. Such a hundi is not negotiable, and the prevalence of such hundis is very rare these days because banks and insurance companies refuse to accept such hundis. * Jawabi Hundi - if money is transferred from one place to another through the hundi and the person receiving the payment on is to give an acknowledgement (jawab) for same, then such a hundi is known as a Jawabi Hundi. * Khaka Hundi - a hundi which has already been paid is known as a Khaka Hundi. * Khoti Hundi - In case there is any kind of defect in the hundi or in case the hundi has been forged, then such a hundi is known as a khoti hundi.

References

External links

{{commons category, Hundis

Legal documents Payment systems Negotiable instrument law Indian business law Accounting source documents Economic history of India Economic history of Pakistan

History

Types of hundi

See also

References

Further reading

External links