4 The 1870s and 1880s
4.2 Capital in Natal
the extractive model as described by Christopher much more than the dense settler pattern.
(As above) It also served the needs of the commercial elites much more than the needs of the settlers; trade still dominated production in Natal.
responsible for organising this capital import by providing loans; profit was made from the difference in lending rates between London and Natal.69 In Britain the NLCC borrowed at six per cent and in Natal it could invest this money at twelve per cent, which was still a good rate and resulted in a large demand for loans from the NLCC.70 This land company was however somehow the odd one out in the financial sector, imperial financial institutions in the
nineteenth century were generally much less interested in investing in productive activities - what the NLCC did by providing loanable funds to settlers - than in trade and the extractive economy.71 Roberts notes that foreign investments usually perpetuated extractive economical structures and Denoon remarks that imperial banks were 'commercial rather than
developmental.'73
In these cash-strapped circumstances trade was made possible through the extension of credit mostly along informal commercial networks. 4 Traders extended credit to their
customers in order to overcome the shortage of cash. The role of Indians in these credit networks was important; one of the reasons for this being that they were mostly excluded from the formal banking sector, another one being that the Indian merchants were included in a network of Indian trade and finances with a long history along the shores of the Indian Ocean.75 Credit could be extended through deferred payment, bill discounting and through 'hundi', a sort of cheque originating in India.7 These networks of trade, credit extension and money-lending linked large merchant houses both to one another and to small traders and linked shopkeepers to their customers. These links could be inter-racial; Indians tended to borrow from Indian merchants, but not exclusively, and Indian shopkeepers would sometimes
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extend credit to African and European customers too. Both banks and merchant houses also lent money but as the opportunities for productive investment were limited this was not a very
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important activity.
The crisis that started in 1865 was predominantly a commercial crisis, caused by the collapse of the credit network that was based on unbacked promissory notes, which banks
7Q
discounted very easily. This system came under severe strain when droughts hit South Africa and the overberg trade came to an almost complete standstill as a result of the Free State-Basuto War. The failure of the leading merchant firm Raw & Wilkinson, which affected many enterprises in Natal, was the trigger. ' This was a typical example of nineteenth century financial chaos caused by overspeculation and was aggravated in 1866 when a
financial crisis hit Britain, which had repercussions in Natal too through the close financial
existence. The banks that had been very generous in discounting credit now encountered severe difficulties and by the end of the 1860s only two banks remained, the imperial Standard Bank and the local Natal Bank.83
These two banks had clearly different political and economic bases and the Natal Bank was the one with a longer history of operation in Natal, as it was incorporated in Natal on the first of April 1854. The Standard Bank opened its first branch in Natal in the early 1860s.84
The conflict between both banks was the same conflict as between the local elites and large- scale imperial enterprises in other colonies. Jones lists some issues concerning the role of imperial banks: 'To whom should banks lend money? Was their business simply to finance long-distance trade, or ought they also to lend to rural entrepreneurs or to government, to assist in industrial development and infrastructure projects, or, at the very least, desist from interfering with those local banks which were prepared to undertake such tasks?'85 The financial and commercial sectors in the colonies in the mid-nineteenth century were usually dominated by private merchants who moved into other sectors than trade, such as landowning, politics and banking. The Natal Bank was very much an example of an enterprise dominated by this merchant elite and two of its founders, Cato and Ferreira, were among the most prominent members of this in-group.86 The Standard Bank on the other hand was the Goliath from London.
For the settler population the competition between these two banks was very important, as a local bank was perceived to be a guarantee for financial independence from the
metropole. 7 The future of the Natal Bank was pretty much linked to the future of the colony;
for the Standard Bank on the other hand Natal was just another region, it had little reason to play a developmental role and invest its profits in the uncertain future of this rather marginal colony. The Standard Bank was a commercial rather than a developmental bank. In its predominantly commercial role the imperial bank could afford not to take many risks, it could use conservative strategies and leave uncertain investments into the productive sectors to the Natal Bank.89 The Natal Bank had therefore much more interesting conditions for local settlers, but it took more risks with that. The reticence of imperial capital to actively invest in the economic future of Natal led -just as in many other places - to some hostility.91 The Natal Bank was saved twice by intervention of the government and it was continuously the one to hold the government account, which was one of the very few substantial accounts.92
This different role of foreign (commercial) and local (developmental) banks expressed itself also in the total liabilities of the branch offices of the bank. The biggest branch for the Natal
Bank was clearly the one in the capital and the biggest branch for the Standard Bank was as clearly the Durban branch. The three other imperial banks that started operating in Natal by the end of the nineteenth century centred their activity overwhelmingly on Durban. That the commercial interests (represented by the imperial banks) left Pietermaritzburg is consonant with its demise as an important commercial centre. Durban was increasingly becoming the only commercial hub of the colony while settler interests increasingly dominated the capital.