Banking Awareness : Indigenous Bankers

Banking Awareness : Indigenous Bankers

Students, in our previous post we have discussed about Non Institutional Credit Agencies. Today we shall discuss about one of it's constituent, Indigenous Bankers.
Introduction :
Indigenous bankers conduct banking business. According to Indian Central Banking Enquiry Committee (1931) an indigenous banker is defined as "Any individual or private firm receiving deposits and dealing in hundies or lending money". One of the distinguishing features of indigenous bankers is that they provide credit by discounting hundies. Both money lenders and indigenous bankers are part of the unorganized money market. It is an ancient system of finance in India. Until formal system of commercial banking came into existence in the middle of the eighteenth century, major part of banking in India was carried through indigenous banking system.

Characteristics of Indigenous Bankers

Indigenous bankers use their own funds for lending activity. Deposits accepted from the public form only a small part of their working capital. Some of the important characteristics of Indigenous Bankers are :-

1. There are very few formalities in the operations of indigenous bankers. 
2. They are flexible in their working hours. Their establishments are small and economical, which makes them accessible to small and poor borrowers. They provide prompt and personalized services without undue delay.
3. Indigenous bankers rely more on the information they obtain from the borrowers through personal contacts that they maintain. They get information pertaining to the past history, business and financial position of the borrower. They also keep a close watch on the activities of the borrower. 
4. They do not maintain accounts in a systematic manner. They use the vernacular for maintaining accounts. 
5. Their operating costs are lower than those of commercial banks. 
6. They may charge different rates of interest according to the need as well as repayment capacity of the borrowers.

Operations and Functions of Indigenous Bankers
Indigenous bankers occupy a unique position in the financial system of the country. Development of commercial banks in the country might have reduced their importance, but has not eliminated them altogether. They perform the following functions.

1. They accept deposits
2. They deal in hundies and bills of exchange. They buy, sell and discount hundies. 
3. They sanction various types of loan and advances on security such as land, crops, gold, silver, even on the basis of personal security.
4. They transfer funds from one place to another through discounting hundies. 
5. They provide finance to traders, artisans, and small industrialists. They do not lend directly to agriculturists. 

Future of Indigenous Bankers 
Many significant changes have been taken place after 1947. Various types of financial institutions have been set up both in the banking as well as in cooperative sector and also in non-banking sector. Commercial banks were nationalized and have been required to finance priority sector. There has been a great expansion of the network of branches of scheduled commercial banks in the country. These changes and development have reduced the importance of the indigenous bankers significantly. Inspite of growth of the network of financial institutions, the indigenous bankers are making their presence and trying to play its due role even though it is a small one. Indigenous bankers are surviving because of their unique characters that they posses.