They were regarded the most fascinating of all the non-indigenous business communities that had traded in the island. They were a very close knitted conservative community with very little intercourse with the outside world. They are Hindus, and devoted a considerable amount of their time to religious activities. They were known to honor their social and business obligations without any deviation. They followed a code of business ethics, which was not common to other foreigners trading in the country. The Ceylonese had implicit faith in the Chettiars. They borrowed freely from them, and also invested their savings with them. They were always assured of a good return on their investment.

Money was often given to them for safekeeping, and the strong box in his house was considered as secure any bank vault in a British bank. They enjoyed a high reputation in the pawn broking business, and the Ceylonese preferred to deal with them rather than with their local counterparts. The Nattukottai Chettiars were the forerunners in modern day finance companies. More than 50% of the deposits of the early finance companies came from this community. They took risks in speculative ventures that the British banks avoided. The current position however is different. It was the disappearance of these Chettiars from the local money market that paved the way for the rapid expansion of the local finance companies.

The harsh words such as “Jews and Shylocks” used to describe these people seems unjustified. At a time when the British banks mistrusted the indigenous population, it was this community that took all the risks to lend to the Ceylonese. Their interest rates would have been rather on the high side, but they were only lending money they had borrowed from the banks. Farther they had to safeguard themselves against bad debts, which was a common feature.

The Nattukottai Chettiars who controlled the economy of the country from about 1875 to 1925, has during this half century helped in no small way, to promote the economical and the business of the country. During the initial of economical growth, there was

During the early stages, they assisted the smooth conduct of trade with India, by discounting the excess Sterling Bills for Rupee bills. Their vast financial recourses in India made this system last until the establishment of the British Exchange Banks in the island, commencing with the Bank of Madras in 1867. Their role as exchange dealers declined thereafter, but their business interests changed within a short period of time, to become the country’s largest money lenders.

It was the good reputation they enjoyed with the British Banks during the early stages as Sterling Bill discounting agents that paved the way for them, in their new role, to become the middleman between the banks and the indigenous population who required capital. Coffee was abandoned in the early 1870’s. It was mostly for tea, and later for rubber that the Ceylonese agriculturists and businesspersons needed the finance and credit. During this time of need, it was to the Nattukottai Chettiar that the local entrepreneurs could turn to for financial assistance, and they were regarded as the official money lenders to the nation.

The Chettiars continued in this role until about 1925, and with the world wide trade depression of the early 1930’s, the government was compelled to undertake the task of providing the necessary finances to the fast developing economy. State sponsored institutions as the State Mortgage Bank was set up in 1931. The Bank of Ceylon followed in 1939, and the Agricultural and Industrial Credit Corporation were structured in 1941, for the sole purpose of offering financial assistance to the local segment of the business community, who had no access to foreign lending institutions. With most credit functions now been undertaken by the state, the volume of money lending business of the Chettiars was further reduced.

During the early British regime the Nattukottai Chettiars carried out the only form of organized banking. They were often referred to as “Merchant Bankers of the country”, and their name became synonymous with private banking.

The Bank of Ceylon considered the first commercial bank in the island was established in1841, as entirely a British concern. With the first coffee crisis of 1848 the Bank of Ceylon failed, but there were many others to take its place. Among them were the Oriental Banking Corporation, the Mercantile Bank, and the Bank of Madras. The Bank of Madras before long assumed control of the Indo-Ceylon trade. This resulted in a further decline in their importance as financiers to the nation.

This change of events forced them to change directions, and do the next best thing, rather than cease operations in the island. They joined hands with the British Banks and became their “Middle Man”. This was the start of a long association between the Nattukottai Chettiars and the British Banks that lasted until about the early 1930’s.

During the mid 19th century, the Ceylonese had no access to the British Bankers, except perhaps to the very wealthy. The Locals were prevented from seeking membership in their social clubs that were frequented by the British bank managers, and other officials. There was no direct communication between the bank officials and the Ceylonese business community.

This obstacle was circumvented by the creation of an agency generally referred to as the “Shroff." This officer is almost unknown in banking circles today. This officer was a native gentleman of sound financial standing, acceptable to society as a person of integrity, who acted as a guarantor for Ceylonese borrowers. These “guarantors” came from the Chettiar community. They had a through knowledge of the individuals who came to them for assistance, and all loans were guaranteed on the payment of a commission both from the bank and the borrower. They played a pivotal role in scrutinizing all applications for loans, and the British Banks would await their recommendation for release of funds to Ceylonese.

All Nattukottai Chettiars could not end up in banks, but unlike the Ceylonese, they were well known to all the shroffs either personally or through business connections. Naturally, they were therefore willing to accommodate the Chettiars more freely than the Ceylonese. Their business connections in India also enhanced their credit worthiness with the local British Banks. It is recorded that between the period 1900 and 1925 the British Banks had lent over Rupees 25 million to the Chettiars, who in turn had re-loaned them to the Ceylonese business community at much higher rates of interest.

The Banks without any subsequent warning, stopped all credits to the Nattukottai Chettiars A number of such firms were forced to suspend operations, whilst many others were closed down permanently.

The report that was published the same year is even today regarded as an invaluable document that portrayed the financial and the economical conditions of the country at that time. Whilst condemning the reckless and indiscriminate manner in which the Chettiars lent money to the Ceylonese, they could not resist the conclusion that then island owned a debt of gratitude to the Chettiars for the country’s economical build up.

It was pointed out that the Chettiars formed a distinctive link between the banks and the public, freeing the former from the risk in direct lending. They had performed a very important function by moving capital from places both internal and external to the point of requirement, thereby aiding the economical development of the country.

The British enterprise found their own finances to develop the plantation enterprise, but the Ceylonese had no such support from the British or their own savings to help them. The Chettiars who had the capital responded well, and if not for their financial assistance, foreign involvement in the country would have been much greater, with hardly any competition from the local community.

The commission was of the opinion that with the Chettiar Crisis of 1925 and the World Depression of the 1930’s that surfaced successively within a short period of time, were responsible for the steady decrease in the financial stake held by the Nattukottai Chettiars in Ceylon, thereafter. The commission realized that they could not continue in their role as money lenders, and financiers to the nation, and recommended to the government the establishment of a state aided bank. The formation of the Bank of Ceylon in 1939 was the outcome of this proposal.

Their presence in the country dates back to the early 19th century when the country witnessed positive signs of development, which provided opportunities for the employment of capital. They not only mobilized their own resources, but also took loans to supplement their means. They specialized in the task of moving surplus capital from places, both internal and external to the point of requirement, thereby helping to develop the country. Had it not been for the ready response the enterprising Ceylonese got from the Chettiars, the foreign involvement in the country would have been greater and more serious.

The highly complicated nature of local mortgages did not prevent the Chettiars from investing so freely in them. The large scale opening up of jungle land for the cultivation of coconut during the early stages of development would not have become a possibility, had it not been for the financial assistance available from the Chettiar community.

They were most liberal with the granting of credit to locals, and the papers processed with the least amount of delay. He did not require perfect titles to the deeds, but was always ready to accommodate the genuine businesspersons, as well as the speculator, the exporter, and the land owner trying to raise a dowry for his unmarried daughter. The Chettiars system of credit had been criticized on the grounds of been too easy, both to the borrower and to the lender. Despite these shortcomings, the system worked surprisingly well up to the time the government was forced to intervene. The Chettiars, it is said, never borrowed beyond their capacity, and there was often inter-Chetty lending, which in turn brought stability to their credit structure?

They were very liberal as securities they secured from the borrowers. Subsequent to the depression, the common forms of security taken by them were promissory notes, cheques, even post dated cheques, and I.O.Us. “The Chettiars were found everywhere, and they engaged in anything and everything," says Weerasooria in his book on the Nattukottai Chettiars. Apart from financing the local trade, they were the chief importers of rice from India, and prime exporters of tobacco to that country. Some of them were so well organized, so as to have their own ships to transport their goods.

The Indian mercantile communities too were very appreciative of their financial involvement in Ceylon. With their own funds they had set up pawn shops, financed the movement of goods from the interior. They had even undertaken estate finance, and had supplied credit to both European and non European estates alike.

“They are planters, merchants, transport agents, Mill owners, contractors, hardware merchants, estate suppliers and engineers. With their low standard of living, and with the assistance they receive from the Europeans, they in time to come, will make impossible for Europeans to compete with them." They enjoyed a monopoly in rice and curry stuff trade, the import trade that was in the hands of the Europeans earlier, and with their unlimited capital, they would oust both the Europeans and Ceylonese and drive them out of business.

Before the depression of the 1920’s their business in the island was estimated at Rs: 150 Million.

All the complaints made against the Chettiars revolved round “interest rates," but in most cases they were well within the limits sanctioned by the legislature. In exceptional cases however, rates varied between 10% and 200%, depending on the circumstances of the case. It is for these reasons that even today, when a person tries to strike a hard bargain, he is often referred to as a “chatty." Witnesses who gave evidence before the commission used such terms as, “usurious,"“iniquitous,"“prohibitive," and “exorbitant," when referring to the rates of interest charged by them. They often realized their debts at short notice, and in the event of a failure, they would foreclose on the mortgages. During the crisis about 75% of the land owners were indebted to them. Most of the land they owned was from foreclosures. It was however pointed out that most of the acquisitions were not of their free will, but forced upon them by their debtors, who preferred to transfer their properties and houses to the Chettiars rather than face mire difficulties later. The Chettiars as a rule preferred liquid cash rather than get themselves tied down to permanent investments in Ceylon.

The Chettiars no doubt performed a useful function, but their intervention in the financial affairs of the country could be viewed as objectionable. It only goes to suggest that the people of the country were not sufficiently trusted by the British lending institutions to receive credit. Under the circumstances they had no option but to turn to the Chettiars, which meant that the Ceylonese were loaded from the very outset, with high interest rates, unlike their British counterparts who had excess to cheap finance. This retarded commercial growth and kept sections of the community in a state of permanent indebtedness.

The Chettiars no doubt resorted to dubious practices and often charged usurious rates of interest, but in the greater interest of the country’s economic progress, which the Chettiars helped to usher in, the Ceylon Banking Commission Report may be regarded as almost a blank testimonial in favor of the Nattukottai Chettiars in Ceylon. They had been responsible for directing finances to areas that the banks otherwise would have found difficult to reach.

They were however quick to condemn the activities of Afghans, and labeled them as the most rapacious type of money lender ever to be found in Ceylon. They even recommended that they should be banned from entering the country. They offered no sympathy, and their borrowers were mainly those in the poorer and the lower middle class of society. They fattened themselves on the misery and improvidence of the poor.

The Chettiars on the other hand were a different lot. The Ceylonese who opened up land during the initial stages borrowed extensively from Chettiars, They were found most sympathetic towards the local borrowers, and they were regarded a valuable asset to the country.