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In South Asia, Muslims made the transition to modern economic life more slowly than Hindus. In the first half of the twentieth century, they were less likely to use large-scale and perpetual commercial organizations and less likely to serve on corporate boards. Providing evidence, this article also explores the institutional roots of the difference in communal trajectories. Whereas Hindu inheritance practices favored capital accumulation within families and the preservation of family fortunes across generations, the Islamic inheritance system, which the British helped to enforce, tended to fragment family wealth. The family trusts (waqfs) that Muslims used to preserve assets across generations hindered capital pooling among families; they were also ill suited to profit-seeking business. Another key difference is that while Hindus generally pooled capital within durable joint-family enterprises, Muslims tended to use transitory Islamic partnerships. Hindu family businesses facilitated the transition to modern corporate life by imparting skills useful in large and durable organizations.

This work suggests that the underdevelopment of South Asia’s Muslims vis-à-vis Hindus of the region has its roots in the differences in the commercial institutions and inheritance laws of the two communities. First, the Hindu joint family was a durable institution and could branch out into long term business ventures. Islamic partnerships were not durable and were unable to carry out long term business ventures. This difference gave the Hindus a competitive advantage in the adoption of joint stock companies. Second, whereas Hindu inheritance law tended to encourage capital accumulation, Islamic inheritance law encouraged capital fragmentation. This gave Hindus more access to capital vis-à-vis Muslims in India’s capital-scarce economy. As a consequence, India’s Hindus came to dominate South Asia’s industry, while the Muslims were marginalized.

This work suggests that the underdevelopment of South Asia’s Muslims vis-à-vis Hindus of the region stems from differences in the commercial institutions and inheritance laws of the two communities. First, the Hindu joint family was a durable institution that could branch out into long term business ventures. Islamic partnerships were not durable and could not carry into long term business ventures. Because of this difference, Hindus enjoyed a competitive advantage in the adoption of joint stock companies. Second, whereas Hindu inheritance law tended to accumulate capital over time, Islamic inheritance law tended to fragment capital over time. This gave Hindus more access to capital vis-à-vis Muslims in India’s capital-scarce economy. As a consequence, India’s Hindus came to dominate South Asia’s industry, marginalizing its Muslims.

The Muslims of South Asia made the transition to modern economic life more slowly than the region's Hindus. In the first half of the twentieth century, they were relatively less likely to use large-scale and long-living economic organizations, and less likely to serve on corporate boards. Providing evidence, this paper also explores the institutional roots of the difference in communal trajectories. Whereas Hindu inheritance practices favored capital accumulation within families and the preservation of family fortunes across generations, the Islamic inheritance system, which the British helped to enforce, tended to fragment family wealth. The family trusts (waqfs) that Muslims used to preserve assets across generations hindered capital pooling among families, and they were ill-suited to profit-seeking business. Whereas Hindus generally pooled capital within durable joint family enterprises, Muslims tended to use ephemeral Islamic partnerships. Hindu family businesses facilitated the transition to modern corporate life by imparting skills useful in large and durable organizations.

The Muslims of South Asia made the transition to modern economic life more slowly than the region's Hindus. In the first half of the twentieth century, they were relatively less likely to use large-scale and long-living economic organizations, and less likely to serve on corporate boards. Providing evidence, this paper also explores the institutional roots of the difference in communal trajectories. Whereas Hindu inheritance practices favored capital accumulation within families and the preservation of family fortunes across generations, the Islamic inheritance system, which the British helped to enforce, tended to fragment family wealth. The family trusts (waqfs) that Muslims used to preserve assets across generations hindered capital pooling among families; they were also ill-suited to profit-seeking business. Whereas Hindus generally pooled capital within durable joint family enterprises, Muslims tended to use ephemeral Islamic partnerships. Hindu family businesses facilitated the transition to modern corporate life by imparting skills useful in large and durable organizations.