As discussed extensively in the previous chapters, extra-legal financial markets need to adjust to the heightened levels of uncertainty inherent not only in the credit contract as such but especially in credit contracts that cannot rely on strong mechanisms of enforcing obligations. The guarantee of contractual law for the regulated segment of credit markets by the modern Indian nation-state constituted one of the strongest possible mechanisms, especially from the creditor's point of view, and particularly in favour of the creditor. At the same time, financial markets in India (and beyond) had long experience with producing conditions that facilitated enforceability at need – the various structures of social embeddedness that lay at the heart of the bazaar economy in its South Asian variant. Historically, financial markets in Banaras had been designed to operate in the absence of strong state enforcement of obligation: as a commercial and financial centre that for long periods had been at the margins of imperial structures of authority, and had flourished despite the lack of politico-military control – or possibly precisely because of it – the credit markets of Banaras were well steeped in modes of governance that created possibilities for sanctioning misbehaviour across caste and community membership. Many of these rested on the versatility of reputational flows governing the hundi trade. But linked to this trade, the reputation of the local market – a crucial content of information for any trader sufficiently distant or otherwise detached from local conditions to be unable to have reputational knowledge of individual bankers or banking families – rested on the enforcement of obligations by the local bankers and merchants. In the absence of arbitrators specifically employed for these purposes like the amin in Geertz's depiction of the bazaar in Morocco (Geertz 1979), it rested on the city's ‘indigenous’ banking families.

By the early 2010s, when I started my research with an ethnographic study of money lending practices in Banaras, extra-legal finance there was flourishing or, it could be said, it was continuing to flourish. It had lost a major share of its predominance in financing trade and petty industry to ‘organized’ banking, and in doing so had shed its links to elaborate forms of mercantile ethics. It had lost its position in the lives of the city's elites (as lenders), and of the city's upper-middle classes (as debtors and lenders). It had lost its importance in financing high-level investments – especially real estate and education. It even had lost ground to regulated forms of banking in financing various other consumption purposes. As one debtor I interviewed put it:

Within the spectrum of this ‘anything else’, extra-legal finance continued to be a ubiquitous occurrence: not everyone went to a moneylender for loans, but everyone beyond the upper-middle class knew people who had experience with moneylenders, and had an idea of who could be approached in the neighbourhood. Everyone knew that money lending was flourishing. Within this spectrum of ‘anything else’, as it turned out, two things really had changed. First, all forms of extra-legal finance had become significantly more exploitative since the late colonial period. And second, the operational modes of extra-legal finance had changed, in some respects subtly, yet – taken altogether – in quite dramatic ways. For Indian public opinion, though, it seemed as if extra-legal finance had ceased to exist, as if it was visible only in Munshi Premchand's stories.

The designation of financial markets as M–M’ markets implicitly highlights the central role of trust in monetary transactions. Devoid of the commodity element in exchange of goods for money that accordingly expresses valuation differentials rather than assessments of uncertainty, financial markets engage in the transfer of money across time and space, extracting a commission for the necessary infrastructure, but especially for the uncertainty involved. Interest and collaterals, seen in this way, are functions of the level of trust employed. Regardless of its embeddedness in institutionalized or socio-cultural forms, assessment of uncertainty remains an individual process in that the party to a transaction needs to employ a variety of methods selected from the means available. Efforts to institutionalize the assessment of uncertainty as risk have taken a variety of forms, and typically several of these forms coexist, so that a historical analysis cannot describe successions of uncertainty assessing structures but merely point out prominently available methods and the gradual decline into obscurity of others. Yet, at all times, the individual needs to fall back on a variety of registers for handling uncertainty.

A significant part of the literature describing ‘modernization’ processes and the emergence of capitalist socio-economic orders deviates from this interpretation by describing a supersession of ‘traditional’ modes of assessing risks by ‘scientific’ or ‘rational’ ones, rather than changes in the patterns of coexisting registers. In accordance with the predominant strands of liberal thought at the time, the late colonial Indian state typically fell back on a ‘disenchantment’ or ‘rationalization’ trope when thinking in developmental terms, even though the literature on the ‘ethnographic’ colonial state provides ample evidence that its governing practices were informed by a much more pessimistic understanding of the unknowable qualities (for the British Indian administration) of the subjected population (see, for instance, Cohn 1996). The optimistic evaluation of the potentials of rationalization vied with more pessimistic perceptions of the possibilities of reform: optimism remained preeminent in guiding assumptions on the desirable outcomes, at the same time as the more pessimistic opinions framed responses that eventually marked the boundaries of where ‘progress’ was at all possible.

The production of a monetary outside in Banaras rested on two interlinked developments – the establishment of credit markets suitable for the expansion of capitalism and the responses by market participants in the segments that could not be served by capitalist credit. The former delineated the inside of the larger market by excluding from its outside the crucial principle that allowed for the aggregation of substantial credit flows necessary for mature capitalist accumulation, a conglomeration of regulatory practices establishing the common capitalist intelligibility of the credit contract as an instrument that fixed the enhanced uncertainty of credit relations in favour of the creditor. Faced with its incapacity to extend these regulatory mechanisms to credit practices serving the needs of vast segments of the Indian population – and with its unwillingness to provide the capital that would have sufficiently improved socio-economic conditions for them to participate in it – the Indian state eventually tolerated the prevalence of extra-legality by largely ignoring its existence.

The responses of market participants, in turn, shaped what had been delineated as a monetary outside. The delineation process of improper transactions never considered how credit markets were operating beyond the state's reach – apart from caricaturist portrayals of greed, violence, and the supposedly insurmountable informational advantage of ‘the moneylender’. Market participants did not need to shape only a market that necessarily operated extra-legally but one that needed to operate in the absence of what had been the predominant forms of making extra-legality work. The reputational credit contract in India in the nineteenth century rested on the employment of social ties and/or elaborate systems of mercantile ethics rooted in the ability of the market's apex to incentivize emulation. The collapse of these mechanisms was facilitated, even if indirectly, by the project to delineate the monetary inside, although its roots also related to larger socio-economic developments.

Arjan was not the first moneylender I met in Banaras but in some ways the most important. I started contacting him through other people known to both of us as part of a brief feasibility study on ethnographic research in Banaras. He managed to avoid me for several weeks, giving polite excuses that demonstrated how little he wanted to meet me. In the end, he was unlucky. He suffered an accident and became bedridden for sufficient time to run out of excuses. Meeting Arjan was a lucky turn for me, though, since our conversations undermined many of my initial assumptions on money lending. I had expected to find a highly exploitative system of credit depending on debt traps extending into an economy of displacement, an economy of favours (or debt-enforced labour), and significant levels of organization.

What Arjan's self-depiction demonstrated, however, was an almost comprehensively ‘amateurish’ economy that primarily worked on simple interest aggregation by a highly diverse assortment of lenders following complex operational logics. And it was much more exploitative than anticipated. A particularly frustrating element of Arjan's self-depiction – for me – was the absence of any shred of a Schumpeterian ‘entrepreneurial spirit’: Arjan had taken over money lending from his father. His clients either had been his father's clients, or their descendants, or they were living in the houses of his father's clients in cases where entire families had moved out. Before passing away, his father had raised the typical interest rate for his loans to 20 per cent per month, and Arjan had not bothered to raise it further, though by 2011 it was a fairly cheap rate for petty loans. He almost never took on new clients and had only ever done this when his existing clients asked him to give loans to friends of theirs. His clients had various social backgrounds, but were only from within the neighbourhood, and the diversity was mostly the outcome of changes in family fortunes over the decades.

The decision to repeal the usury laws in British India did not remain uncontested, not only by protesting farmers, but also in the legislatures and courts. While one of its effects certainly was to enhance the importance attributed to the written form of contracts, the actual practice of debt relations in Indian society remained to some extent unaffected by it. The vast majority of debt contracts did not lead to litigation. Instead, moneylenders frequently relied on written contracts and court litigation either as a last resort in cases of default or to ‘fleece’ debtors once the accumulation of interest payments had led to default. The Deccan Riots formed a major threshold in the development of British Indian policy, especially in the development of law and legal interpretation. Yet the comprehensive sway of the Benthamite doctrine on the futility of usury laws had been challenged even before, especially in tenancy laws. Thus, for instance, the Bengal Landlord and Tenant Procedure Act of 1869 (Act VIII B. C. of 1869), concerning the procedure of suits between landlords and tenants, in Section 21 provided an interest rate of 12 per cent per annum for arrears in rent, unless otherwise provided for by written contract. Read together with Section 67 of the same act, stipulating the signing of a kabuliyat for outstanding arrears in rent for transfers of landed property between tenant and (new) landlord, the act in practice imposed an effective maximum interest rate for a significant number of debt relations.

The effects of legal measures on the actual practice of debt relations should not be overstated as even where suits were instigated, especially the subordinate courts were unlikely to employ this legal reasoning to set aside the evidence of a written contract. The case of the aforementioned act, however, emerged as one of the early cornerstones in the development of legal doctrine regarding debt cases.

‘Can you imagine that I am handing out interest-free loans right now?’ I was asked in December 2016 by a moneylender in Banaras (Varanasi) who normally charged a rate of 30 per cent per month. A few weeks earlier the Indian government overnight had withdrawn banknotes of 500- and 1,000-rupee denominations, the vast majority of all cash in circulation – certainly one of the biggest policy misadventures in recent history. Since the ‘demonetization’ misadventure had not included any apparent planning for a re-monetization, trade in the city's ‘bazaar’ had collapsed, by some local estimates upwards of 80 per cent. While many extra-legal lenders were simultaneously engaged in commerce, and therefore affected by the policy, it also constituted a business opportunity. Old denominations could be exchanged for new ones only with significant difficulties, in an endless-seeming array of fresh regulations restricted to very low amounts. For richer Indians, exchanging old banknotes that had become practically worthless depended considerably on finding poorer people who would exchange them in their stead. The market value of the ‘old’ banknotes in Banaras, as elsewhere, dropped drastically. They became available to buyers within days of the policy announcement for 75 per cent of their nominal value. By early December this value had dropped to 60 per cent, and to 40 per cent around mid-December. One way of getting the devalued banknotes into the banking system hinged on loans by moneylenders. The depositors – frequently depicted obnoxiously as ‘money mules’ or chotus (lit. little ones) in the parlance of India's upper-middle classes – made deposits consisting of (frequently interest-free) loans given to them by moneylenders. Consisting of devalued banknotes, these loans thus entered the banking system, and could be withdrawn in legal tender a few months later to repay the moneylenders. For the depositors, this practice brought about a significant respite from economic distress.

When I asked the lender why he did not charge interest, he proceeded to outline an argument that I had already become familiar with in my fieldwork. The agreed-upon interest rates for a transaction mostly served as a guideline. Eventually, given their exceedingly exploitative character, almost all debtors would default.

The shift in policy towards granting the courts discretionary powers led to a significant drop in litigation cases reaching the higher-level courts, visible almost as soon as the Usurious Loans Bill was enacted in 1918. There are indications that matters of usury continued to be dealt with for a time by small causes courts, though. In principle, the shift in legal doctrine on credit markets marked a significant rupture. It rescinded the operation of contractual law for transactions that were defined to be usurious, just as much as the repeal of the usury laws in 1855 – in principle – had imposed contractual law on the earlier economies of debt. The policy shift towards the doctrine of unconscionable bargains clearly relates to the endeavour to define propriety in economic relations, though the definition of the ‘proper swindle’ (Birla 2009) with regard to credit markets took on an ambiguity that needs to be emphasized here. While marking a broad array of credit transactions as improper, and dissecting these from the proper debt relations that continued to fall under the purview of contractual law, the shift towards discretionary powers did not envision state supervision of propriety through regulation. It did not constitute a move towards enhanced formality. On the contrary, it (vaguely) delineated an economic enclave in which state regulation would remain incoherent and arbitrary, and implicitly envisioned creditors in this segment to seek redress in extra-legal manners. While ‘proper’ debt transactions became increasingly subjected to regulatory regimes, their ‘improper’ equivalent was implicitly intended to remain fuzzy.

While it is difficult to ascertain the precise effects of the new policy with respect to the lower courts, the influence of the shift in legal doctrine on the actual operations of credit markets can only be seen in long-term developments. Credit markets in northern India were extremely complex and could not be expected to become neatly detached into two segments within a short period of time. The United Provinces Banking Enquiry Committee described the credit markets they encountered in 1929–30 in derogative fashion as ‘a tangled jungle of disorderly transactions’, marking their disapproval of the messy character of Indian business relations, despite the fact that colonial interventions through the use of discretionary powers increased rather than decreased the complexity of markets.