Tipu Sultan’s Innovative Banking System

Tipu was not just a brilliant strategist but also had sound economic sense. His enterprises across Mysore and the rest of the world included factories in Kutch, Muscat,Karachi, Mahe, Pune, Nagore.

All this was looked after by a corporation instituted by Tipu. The main purpose of the corporation was Trade. It had to buy at reasonable rates locally and export them through it’s factories.

In a very interesting order, Tipu asked the officials of his corporation to raise capital from the public as well as through inviting deposits. These were to be held on an annual basis with the principal to be returned after a year along with the interest earned. The interest was temed ‘nafa’.

We also have with us the interest rates on each deposit, which varied with the size of each deposit, smaller depositors earning more interest.

A deposit of 5-500 Imamis(Silver Rupee, 10.7 – 11.6 gms.) received 50% interest.
A deposit of 500-5000 Imamis(Silver Rupee, 10.7 – 11.6 gms.) received 25% interest.
A deposit of greater than 5000 Imamis(Silver Rupee, 10.7 – 11.6 gms.) received 12% interest.

This gives us a few important insights:
1. Tipu wanted to encourage weaker and the less affluent to invest their savings with his corporation. In those days most of money was hoarded at home or buried around somewhere.
2. He was pragmatic enough to move away from a core Islamic concept of Interest Free loans. This shows his farsightedness. Today almost all Islamic countries have interest levying banks.

However we still do not have information on how Tipu managed to keep his bank floating while he was paying such high interest rates to his depositors.
We also do not know what systems he had in place to ensure that rich men did not piece up their deposits into smaller amounts under fictitious names.


About Olikara

An engineer, history buff, collector of South Indian antiques.
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