Introduction: Finance Before Banks

The Eurocentric economic perspective has led to the Eurocentric view that the Indian Ocean trade represents an extreme example of European market development. Europe’s lack of banks, joint-stock companies, or credit institutions does not imply that commerce was less developed in the area during this period; rather, trade relied more on legally defined obligations than on centralised financial institutions, relying instead on transferable trust and market reputation.

Kilwa and other key port cities in the western Indian Ocean were part of an economic system that moved large sums of money throughout the region without a banking system. Ships would leave Hormuz, Aden, Gujarat, and the Red Sea with fabrics, jewellery, pottery, and commercial cash, returning to the Swahili Coast with ivory, gold, mangrove poles, tortoises, and slaves. Such transactions needed investment, deferred payment, legitimacy, value protection and ‘finance’. Commercial repute was a form of financial trust that extended beyond ports. Credit may travel faster than currency itself.

To understand the implications of this arrangement, we refer to The Kilwa Chronicle in both Arabic and Portuguese versions, cited in English by G. S. P. Freeman-Grenville in his book The East African Coast: Select Documents from the First to the Earlier Nineteenth Century. The Chronicle is a dynastic history, but it also discusses various types of commercial migration, political control over ports, currency, and the value of gold.

The chronicle’s reports about the arrival of Ali ibn al-Hasan on the East African coast are stated as follows:

“because of the reports of gold to be found on the coast of Zanzibar, came thither.”[1]

This shows that gold attracted people from around the world to the Swahili region through commercial ventures.

I. Partnership Models and Capital Deployment

Capital Was Mobile Before It Was Institutional

Long-distance trade profits needed a large capital investment. Ships had to be looked after, stocked and defended. “Someone had to pay the navigators and the sailors. And, there was the need to hold cargo for months until sale.

Such commercial transactions were beyond the financial capacity of most private merchants.

Trade thus relied upon partnership arrangements, sharing risk and wealth. It often resembled the qirad or mudaraba partnerships of the wider Islamic commercial community, in which one partner gave finance and the other provided labour and marine expertise, and profits were divided by mutual agreement. These were not loose arrangements. They were commercial structures, legitimate and operating across the Indian Ocean.

Suppose there’s a rich widow in Aden who’s got money but no way of getting anywhere. She is taken on a Qirad with a skipper sailing for Kilwa. By law, if the ship is lost in a storm, she loses her money, but the captain is not a debtor; he only loses his labour. But if the skipper steals the cargo, the law pursues him as a criminal. This separation of investment risk from personal culpability facilitated the financing of maritime trade by those who never set sail personally.

This legal language is not officially used in the Kilwa Chronicle, but the same thinking is reflected in practice. What this means:

“He was already married, and gathered together his wife, sons, family and some other people, who wished to follow him in the enterprise, and embarked in two ships at the island of Ormuz.”[2]

This migration was unlike any other. The expansion was commercial in nature.

Ships had to be built, followers had to be paid, provisions had to be purchased, and political ambitions had to be fostered. The settlement was an investment plan. The promise of future customs payments, trade routes, and economic dominance drew people to marine migration.

The Chronicle has that, too.

“It is said there were seven ships…”[3]

It demonstrates planning during dissemination, not chance colonisations. Mombasa, Pemba, and Kilwa were part of a much larger trade network. Merchant dynasties thrived along the routes, not just on land.

Political Sovereignty Was Commercial Capital

The Kilwa rulers were sovereign financiers, not trade kings. Their success was driven by commercial control rather than territorial dominance.

The most notable case was Sofala. Kilwa had a monopoly on the point of entrance of gold from the interior into sea commerce, and hence controlled one of the most profitable exchange systems in the western Indian Ocean.

Gold from the Zimbabwe plateau was transported to the coast via Sofala and then into the Indian Ocean market via Kilwa. Sofala controlled the liquidity. According to Freeman-Grenville, Kilwa’s prosperity stemmed from its control over the conversion of gold into exchangeable wealth rather than from gold mining itself.[4]

The middleman was frequently wealthier than the producer, as control of the trade generated revenue without extraction.

Rulers profited themselves through customs duties, harbour taxes, tribute, and control over export channels. This excess was utilised to build great buildings, such as Husuni Kubwa, and to expand the Grand Mosque. Archaeological evidence also suggests that Kilwa became one of the most active minting sites on the East African coast.[5]

Coinage has political significance in addition to its monetary value.

Law functioned as fundamental infrastructure, not merely an accessory. Access to the harbour, tax collection, customs charges, and commerce all required the presence of a legally recognised government entity. There was no sovereignty to enforce it. trading remained, but large-scale, stable trading ceased.

The commercial alliances relied on a solid legal and political framework.

II. Trust-Based Credit and Deferred Payment Systems

Credit Without Immediate Payment

Money did not constitute the primary medium of exchange in the Indian Ocean.

Payment often occurred later than immediately.

Cargo was often transported without payment. A merchant in Kilwa could acquire ivory on credit with the understanding that it would be delivered after he had sold it in Gujarat. The captain could be carrying cargo bought by someone else and settling his debts when the monsoons arrive. Trusted merchants whose reputation had already been established were given the freedom to pay for port taxes at a later date.

This was an example of a system of deferred payments that existed across maritime networks.

The Kilwa Chronicle emphasises that succession and political stability are more important than mere continuity of rulership. Credit could be given if the ruler took responsibility. Written agreements were too risky to engage in owing to the unstable political environment, but as long as there is reliable succession, business will remain less risky.

Ancestry was important because lineage determined reputation and identity.

The Binding Nature of the “Word”

However, to transfer this belief thousands of miles away, the traders employed Hawala and Sujtaja.

Hawala was about exchanging debt. So if you were a trader in Kilwa and owed an amount of money to a captain in Gujarat, you didn’t have to give the captain his gold. Instead, that amount would show up in a trader’s account in Aden (closer to his port). This meant that the amount of money would actually be moved by ships across the ocean without any gold coins being placed into circulation.

The Sujtaja was similar to a bill of exchange or the modern-day traveller’s cheque. The purpose of Sujtaja was to provide security against the menace of piracy; instead of a box full of money, he could possess a Sujtaja, which served as an order to withdraw money from his agent at a distant port.

Law as the Core Infrastructure of Trust

It is important to remember that Islam was not only some moral add-on but an institution as well. As those who left Kilwa travelled to places such as Aden, Hormuz, and Gujarat, they would be under new rulers and had to learn new languages; however, the laws of loaning and repayment, and of contracts and inheritance, remained clear.

Enforceability was provided by institutions comprising mosques, qadis, merchant networks, and reputation. A merchant whose behaviour did not live up to expectations ran the risk of no longer being allowed into such networks in the Indian Ocean basin.

This was reinforced by the continued practice of monsoon trade, in which merchants visited the same ports, saw the same faces, and used the same networks year after year. All it took to ruin years of goodwill was one broken promise.[6]

Comparative Note: Indian Ocean vs Mediterranean Finance

In the Mediterranean, commercial financing was evolving progressively toward an accounting-focused approach. This is obvious in the Italian city-states, which used financial institutions, trade invoices, and commercial bookkeeping.

The western Indian Ocean travelled in a different direction.

Social trust was distributed rather than centralised in institutions. Banks would later fulfil three roles: social position, kinship, and legal position. The absence of banks signalled the beginning of a new legal-commercial system, not a weakened financial system.

The significance of this comparison is that Eurocentric ideologies often associate difference with lack.

Kilwa was not a place of underdeveloped finance.

Technical Note: The Mosque Donor and Financial Integrity

As Kilwa explained, a benefactor rebuilt the mosque and received 1,000 gold coins from the ruler as payment. In the stories, instead of taking the money, the benefactor gave it back to the ruler’s children after he died.

What matters about this performance is not its moral, but its economic success. Public memory assured financial credibility and economic trustworthiness.

III. Currency, Bullion, and Store of Value

Bullion Before Currency

Trade needed money, but money didn’t necessarily need coin.

Bullion was the most reliable store of value, especially gold and silver. Unlike local currencies, it was easily transferable across political borders. There was currency, but the worth of the precious metal was typically more than the denomination.

The Kilwa Chronicle begins with the drawing of gold, which shaped Kilwa’s entire commercial geography. Gold from Africa’s southern interior was transported via Sofala and Kilwa to markets in Arabia, Iran, and India.[7]

Ports served as trading hubs and sources of revenue generation.

Freeman-Grenville notes that Kilwa’s dominance stemmed from its control of the route to gold, not from the conquest of the hinterland. The revenue was generated from trading activities and customs, and not from extraction.

For example, even though the Gujarati businessman did not trust his partner in Kilwa, he trusted his gold because of its intrinsic value. The quantifiable nature of gold enables individuals to conduct international transactions, as political circumstances in a country do not affect the amount of gold traded.

The value of bullion depended on its legality.

Coinage and Monetary Authority

Silver and copper coins were minted in Kilwa primarily for local consumption. One inscription says:

“‘Ali son of al-Hasan / May he be happy!’”

Aside from their practical use as currency, the coins also implied that the Sultan had jurisdiction over units of measure and taxes. Not only was the treasure of Kilwa kept in treasuries, but also within the walls of the Grand Mosque and Husuni Kubwa, where the market’s money was turned into stone.

Archaeological evidence indicates that coins were issued by rulers such as King Ali Ibn Al-Hasan and subsequent sultans. Coins had a political implication as well.

Among metals, copper was traded more often, while silver and gold were held as investments and used for external transactions. The bullion was melted and weighed in several places.

Functions performed by coinage were:

• local exchange and taxes
• customs duties and port control
• demonstration of dynastic legitimacy to the public
• converting business surplus into political power

Elite buildings also housed imported goods like Chinese celadon and Persian glazed bowls, demonstrating commercial affluence. There were no simple decorations. Visible evidence of engagement in profitable exchange systems.[8]

The wealth created from trading wasn’t only stored in vaults but also in the structures themselves.

Technical Note: Coin Inscriptions

The Chronicle also maintains the phrase:

“Trusts in the Masters of Bounties.”[9]

Money is classified into types according to who has authority over it legally and whether there is a moral basis for that authority. Coin circulation is mostly an economic activity; however, inscription circulation is mostly political. The desire for money is an expression of Value; the desire for security is an expression of Recognition.

IV. Trust as a Financial Institution

Reputation Replaced the Bank

Today’s financial system depends on documentation, guarantees, and enforcement.

In contrast, the medieval Indian Ocean trading system depended on meetings, identification, and trust.

The merchant’s name was the key to obtaining credit. His family, his behavior, and his known commitments determined whether he should receive items without being compensated for them right away. Individuals have commercial obligations before they sign a contract.

The port cities of Kilwa, Mombasa, Mogadishu, and Aden all functioned based upon obligations of memory; when merchants travelled to such regions, they were guaranteed that they would be safe from robbery because they were known in that area, and the merchants would be able to conduct business without fear of being robbed.

The Vulnerability of the System

Though complex, this model had one major drawback: It could not function without “Political Continuity”. A relationship-based model of business can succeed only if there is continuity in the network and everyone knows they will see each other again. The Portuguese arrived in the 16th century and brought a sense of force, thereby disrupting the “Circle of Trust”. With violence substituting for reputation, there was no more liquidity.

Limitation and Consequence

The settlement worked really well. However, it did have some limitations.

For example, relationship-based financing worked in an ongoing network of traders who were expected to meet up again. The use of force was detrimental to trading, and new entrants to the trading platform lacked rules of engagement and were therefore unable to use this option.

This constraint is demonstrated by the Portuguese invasion in the 16th century, when a monopoly on force and the imposition of tariffs hampered trade.

Chapter Post-Mortem: Financial Instruments Identified

To examine the economy of Kilwa and the Indian Ocean more broadly, we will need to take into account an ensemble of interconnected devices rather than bank-like structures characteristic of contemporary capitalism.

• The risk-sharing system through investing devices similar to Qirad
• The system of deferred payments was based on the postponement of payments after the resale of goods
• The debt clearance system enables the transfer of values from one port to another without using cash money
• Medieval bills of exchange secured capital against sea pirates and provided it with liquidity in remote places
• Credit founded on reputation in place of banking built on collateral
• Sovereign wealth obtained through taxes paid in ports and customs fee
• Bullion liquidity through the use of gold and silver as regional monies
• Currency in the form of coinage is money in circulation and sovereignty
• The Islamic law of business transactions is the law of commerce
• Kinship groups as mobile accounting and trade agents
• Pilgrimage groups as transmitters of recognition and commercial reliability

Trade in the Indian Ocean did not depend on banking systems but rather relied on legal systems, reputation, and political authority.

References

1. Pieter de Rideaux, “Kilwa Chronicle (Translation),” History and Chronicles of the Main Towns, (accessed April 28, 2026).
2. Ibid.
3. Ibid.
4. G. S. P. Freeman-Grenville, The East African Coast: Select Documents from the First to the Earlier Nineteenth Century (accessed April 28, 2026).
5. Pieter de Rideaux, “Kilwa Archaeological Commentary,” Tanzania: Kilwa, (accessed April 28, 2026).
6. “Kilwa Sultanate,” Wikipedia, (accessed April 28, 2026).
7. Freeman-Grenville, The East African Coast: Select Documents from the First to the Earlier Nineteenth Century.
8. “Kilwa Kisiwani,” Wikipedia, (accessed April 28, 2026).
9. Pieter de Rideaux, “Kilwa Chronicle (Translation).