How do religious institutions affect long-run development? Most studies examining this relationship study its impact on human capital formation. I instead argue that decentralized religious institutions led to long-run development by anchoring market participation, political competition, and public goods provision at the micro-level. The legacy of the past millennium’s religious institutions permeates villages today. I provide empirical evidence from the Indian subcontinent, where the Sufi Khanaqah evolved from the 13th century onwards. I construct a novel dataset of Khanaqah locations for all villages of India. The dataset is integrated with census-level data for the years 1991, 2001, and 2011, road upgradation data for 2000-2015, and pooled assembly election results for 1974-2018. Development is indicated by economic activity measured with night-light, health measured by nutritional status, literacy rate, consumption per capita, and poverty rate. I find that the presence of Khanaqah is empirically associated with higher long-run development at the village-level.