The Evolution and Persistence of Informal Credit in Rural North India, (c. 1850-2010)

Abstract

This paper presents a historical analysis of the rural credit ecosystem in colonial and post-colonial North India, with a specific focus on the Punjab-Haryana region. It argues that the institution of the moneylender, far from being a static feature of a traditional economy, was dynamically shaped by state policy, legal frameworks, and infrastructural changes. The colonial period (c. 1850-1947) did not merely witness the persistence of the sahukar but actively constructed his power through the individualization of property rights, codified contract law, and cash revenue demands, creating a hybrid trader-lender embedded in the agrarian economy. Post-Independence, the Indian state embarked on an ambitious project to architect a formal rural credit system, aiming to displace private moneylenders through cooperatives and social banking. This paper analyzes the qualified success of this project, demonstrating how the heyday of directed credit in the 1970s-80s was followed by a retreat during the liberalization era of the 1990s. The paper concludes that the rural credit landscape in India is best understood as a layered system, where formal and informal sectors coexist and interact, with the historical legacy of the colonial-era sahukar continuing to influence the structure and function of rural finance into the 21st century.