‘Fortune Seekers’: How the Nattukottai Chettiars influenced global finance

One of the noticeable features of the Chettiars’ investment portfolio was their external and internal trade in a host of commodities. They established a firm grip over the import trade in rice, sourcing it through their agency firms from Bengal and Thanjavur. Such was their control that even the resident European merchants had to pay large sums of money to the Chettiars to secure the necessary supplies. They also controlled much of the coastal trade in arrack and other coconut products between Ceylon and Madras. The lucrative raw cotton trade was another line of their business, which they lost later when it relocated to Tuticorin and the cash advance system was abolished.

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Until the European exchange banks set up shop in the island in the latter half of the nineteenth century, the Chettiars were considered to be the major bankers and, for a while at least, they exerted a significant influence, financially, on the island economy. Their role as financiers assumed importance principally on account of the peculiar exchange problem that Ceylon faced during this period. This emanated from the island having to meet the trade deficit with India in rupees out of receipt of excess sterling earned from Ceylon’s exports to England and to Europe. Thus, sterling had to be converted into rupees. This vital function was performed by the Chettiars. Utilizing their connections in south India, the Chettiar firms were able to arrange for remittances to and from India. As they had virtually a monopoly in this line of business, almost all the European merchants were said to have had dealings with them. There is also evidence that Chettiar finance was utilized in transporting the little native coffee that was then produced from the interior to the major trading centre.

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From the mid-nineteenth century onwards, the island economy entered a new phase, marked by the growth of an export-oriented plantation sector. It was coffee to begin with but, following the severe blight that affected the coffee plantations in the 1880s, it gave way to tea and, later, rubber. Alongside that, there was also a steady growth in the area under coconut. As in other regions, the opening of the Suez Canal encouraged greater flow of foreign capital. The large plantations of coffee, tea and rubber were developed predominantly using British capital.

Banking development in the island mirrored the changes overtaking the island’s economy. Not coincidently, the European exchange banks also made their entry around this time to reap the benefits from the export trade. The foreign banks that made their appearance during this period were, in fact, branches of established British banks whose operations straddled many colonial territories. The Bank of Ceylon, promoted in 1841 by William Thompson, a London merchant with business in Ceylon, was the first modern bank to appear on the island. Short-lived, the bank collapsed following the coffee crisis in 1847–48. It was taken over by the Oriental Banking Corporation in 1851. The Chartered Mercantile Bank and the Bank of Madras opened a branch each in Ceylon in 1854 and 1867, respectively.

With the coming of the exchange banks, the Chettiars forfeited their earlier pre-eminent position in the sphere of currency exchange, and the business of discounting sterling bills slipped out of their hands. Their role as major suppliers of credit to the European merchants was considerably eroded. Despite this setback, they more than made up for this loss in the short run by channelizing their investments into newly emerging areas. Besides the large British-owned and managed coffee plantation estates, there were also a number of small coffee holdings owned by the Ceylonese. Likewise, in the latter half of the nineteenth century, the innocuous coconut was gradually gaining importance as a commercially viable and exportable commodity. The area under coconut went up threefold, from 2 lakh acres in 1860 to 6 lakh by 1900. Coconut, unlike coffee and tea, was grown in relatively small holdings by the local Sinhala farmers.

The production and marketing of coffee and coconut, besides other commodities, generated enormous demand for credit. For the large majority of these Ceylonese growers and merchants, however, the European banks were inaccessible because of the stiff standards of creditworthiness they set. This was compounded by the banks’ lending policy, which was largely geared towards the financing of export trade and the expatriate firms involved in this line of business. Under these circumstances, the growing demand for credit from the non-European segment of small and medium estate owners and merchants was a segment that the Chettiars could tap to their advantage. Utilizing their large pool of capital and the well-organized network of firms across the island, the Chettiars moved in to meet the demand for credit both in the urban and the rural sectors. The capital requirement for the initial investment in the Ceylonese coffee estates and coconut holdings was, to a large extent, sourced from the Chettiars.

Excerpted with permission from Fortune Seekers, by Raman Mahadevan, published by Penguin Random House India. The book will be on sale in the last week of April.

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