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In today’s hyper-legalistic world, multi-page contracts filled with dense clauses seem indispensable for any significant transaction. We rely on lawyers, signatures, and the formal backing of the legal system.
Yet, for centuries, across the vast and diverse landscape of India, commerce thrived on a different kind of currency, something perhaps even more potent: Zubaan. The spoken word. The promise. The bedrock of trust.
Long before formalized banking or complex legal frameworks dominated trade, India built sophisticated economic networks based on intricate systems of reputation (Saakh), community accountability, and the profound weight of the oral contract.
This wasn’t a primitive system; it was a highly evolved mechanism that enabled vast amounts of trade, credit, and investment to flow across immense distances, creating immense value and contributing significantly to India’s historical economic dynamism.
Now, in the age of artificial intelligence and complex algorithms, this seemingly archaic world of trust-based commerce is finding an unexpected echo.
As modern fintech innovators grapple with financial inclusion – particularly how to assess the creditworthiness of millions outside the formal banking net – they are looking back.
They’re exploring how the principles behind India’s traditional systems of reputation and community accountability can inform cutting-edge algorithms, potentially revolutionising credit scoring by incorporating the very social capital that powered commerce for millennia.
The Anatomy of Trust: How Commerce Flowed on a Promise
Imagine medieval India: a patchwork of kingdoms, diverse communities, limited literacy for the masses, and challenging transportation. How did merchants in Surat trust counterparts in Varanasi, or financiers in Chettinad extend credit across the Bay of Bengal?
The system rested on several interconnected pillars:
- Zubaan aur Vachan (The Word and The Promise): A person’s word was their bond. Backtracking on a commitment, especially in commercial dealings, wasn’t just frowned upon; it could be socially and economically fatal. This cultural emphasis on honouring one’s promise formed the foundation.
- Saakh (Reputation/Goodwill): This was arguably the most crucial asset. Saakh wasn’t just about individual integrity; it encompassed the reputation of the family, the community, and sometimes even the region. It was built painstakingly over generations and guarded fiercely.
A loss of Saakh meant exclusion from credit networks and trade circles. Anthropological studies of Indian market towns and merchant communities consistently highlight the centrality of reputation management. - Community & Guild Accountability: Trade often occurred within specific caste or community networks (e.g., Marwaris, Chettiars, Baniyas, Jains) or craft guilds. These tight-knit groups acted as self-regulating bodies. They possessed deep knowledge of their members’ dealings and reputations.
Disputes were often mediated internally, and sanctions (including boycotts or expulsion) against dishonest members were swift and effective, often more feared than formal legal action. Historians like Tapan Raychaudhuri and Irfan Habib have explored the functioning of these merchant networks. - The Hundi System: Perhaps the most sophisticated manifestation of trust-based finance was the Hundi. These were indigenous bills of exchange – essentially written orders (though often relying heavily on the reputation of the issuer and drawee) allowing merchants to transfer funds across distances without physically carrying large amounts of cash.
They worked purely on the established Saakh of the parties involved and the network of agents (shroffs or bankers) who honoured them. The existence and widespread use of Hundis, documented in historical records and commercial correspondence, attest to a highly functional credit system built on trust.
Why Did It Work? The Unseen Enforcement
This system wasn’t based on blind faith. Robust, albeit informal, enforcement mechanisms were at play:
- High Cost of Default: Social ostracization, loss of marriage prospects for children, exclusion from community rituals, and inability to secure future credit were devastating consequences.
- Information Networks: Gossip wasn’t just idle chatter; it was a vital channel for credit information within dense social networks. News of defaults or sharp practices travelled fast.
- Reciprocity & Long-Term View: Business relationships were often multi-generational. Maintaining trust ensured continued prosperity for the family and community, outweighing potential short-term gains from dishonesty.
Modern Finance Meets Ancient Wisdom: The Fintech Connection
Now, consider the challenge for modern fintech companies aiming for financial inclusion in India. A vast segment of the population lacks formal credit scores (from agencies like CIBIL) because they haven’t interacted with formal credit systems. Traditional banks, relying heavily on these scores and documented income, often deem them “unscoreable” or too risky.
This is where the principles of the old trust economy find new relevance:
“Formal credit bureaus capture only a fraction of a person’s financial reliability, especially in India,” explains Dr. Ananya Rao (fictional name), a data scientist working with a leading Indian fintech firm. “Millions pay their local kirana store owner on time, honour informal loans, and have strong community standing. This is valuable data, reflecting their true Saakh, but it’s invisible to traditional systems. Our challenge is to capture proxies for this trust using digital footprints.”
How are fintechs attempting this?
- Alternative Data for Reputation Scoring: Algorithms are being developed to analyse non-traditional data points as indicators of reliability – essentially, building a digital Saakh score. This includes:
- Regularity of utility bill payments (electricity, phone).
- Cash flow patterns in bank accounts (even basic ones).
- E-commerce purchase and payment history.
- Rent payment consistency.
- Educational background and employment stability.
- Even anonymised analysis of smartphone usage patterns (e.g., app usage consistency, location stability).
- Leveraging Social Connections (Digital Community): Inspired by community accountability, some fintechs incorporate social network analysis:
- Social Vouching: Allowing users to be “vouched for” by contacts with good credit histories.
- Group Lending Dynamics: Peer-to-peer (P2P) lending platforms or apps facilitating informal group lending often implicitly leverage social pressure and mutual accountability familiar from traditional systems.
- Network Stability Analysis: Assessing the stability and strength of a user’s digital social network (though ethically sensitive and used cautiously) as a potential indicator of social integration and reliability.
Research bodies associated with financial inclusion, like the Consultative Group to Assist the Poor (CGAP) or studies published on platforms related to the Reserve Bank of India (RBI), often discuss the potential and pitfalls of using such alternative data and algorithms for credit scoring in emerging economies.
Weaving Trust into Algorithms: Nuance and Responsibility
This fusion is not without challenges. Relying on digital footprints risks excluding those with limited digital access.
Algorithmic bias is a real concern – ensuring these proxies for Saakh don’t inadvertently discriminate based on location, community, or other factors is critical. Privacy is paramount; using personal and social data requires robust consent frameworks and ethical oversight.
Furthermore, we must avoid romanticising the past. Traditional trust networks, while effective, could also be exclusionary, often operating within rigid caste lines.
Modern systems built on these principles must be designed for universal fairness and inclusion, explicitly guarding against historical biases.
The Enduring Value of ‘Zubaan’
The enduring legacy of India’s trust-based commerce is a testament to the power of social capital. It demonstrates that economic value can be built not just on legal structures, but on shared norms, reputation, and the fundamental reliability of human relationships.
As fintech innovators strive to build a more inclusive financial future, they are finding that the keys might not lie solely in complex code but also in understanding the sophisticated, human-centric systems that allowed the “oral contract” to flourish for centuries.
By ethically and intelligently weaving the principles of Saakh and community accountability into modern technology, perhaps we can build financial systems that are not only efficient but also deeply rooted in the enduring value of trust – a value that has always been central to the Indian way of commerce.
What are your thoughts on using alternative data or social connections for credit scoring? Do you see parallels between traditional trust systems and modern digital interactions? Share your perspectives in the comments below! And if this article made you think, please share it on WhatsApp, Facebook, and Twitter to continue the conversation.
