A hundi or hundee is a financial instrument that developed in Medieval India for use in trade and credit transactions. It is a type of promissory note or bill of exchange that can be used as a form of remittance instrument to transfer money from place to place, as a form of credit instrument or IOU to borrow money, and as a bill of exchange in trade transactions. The Reserve Bank of India describes the hundi as "an unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order". Hundis have a long history in India, with written records showing their use at least as far back as the twelfth century. During the colonial era, the British government regarded the hundi system as indigenous or traditional, but not informal, and they were reluctant to interfere with it as it formed such an important part of the Indian economy.
Hundis are primarily an unconditional contract or order which guarantees a monetary payment that can be transferred by valid negotiation. There are different types of hundis, such as Darshani hundi, which is payable at sight, and Usance hundi, which has a normal maturity period. Hundis are governed by the law in the locality.
Hundis are still used today, particularly in South Asia, but they have also been associated with illegal activities such as money laundering.
