Money lending in Ancient India | History Optional for UPSC (Notes) PDF Download

Early Vedic and Later-Vedic Period (1500 BC – 600 BC)

The initial mention of money lending can be found in the Shatapatha Brahmana, where a usurer, or money lender, is referred to as Kusidin. This term appears multiple times in the text and is understood to signify a money lender who charges interest.

During this period, loan deed forms known as rinapatra or rinalekhya were commonly used. These documents included important details such as:

• The names of the debtor and the creditor
• The amount of the loan
• The rate of interest
• The conditions of repayment
• The time frame for repayment

The deed was typically witnessed by an individual of respectable means and endorsed by the person who drafted the loan deed.
However, it is important to note that the evidence of money lending practices during this period is quite limited and not definitive.

Post-Vedic Period (600 – 300 BC): Emergence of 2nd Urbanization

During the Post-Vedic period, specifically between 600 and 300 BC, India witnessed the beginning of the second phase of urbanization. This era was marked by significant developments in various economic practices, particularly in money lending and trade.

Evolution of Loan Practices:

• Loan Deeds: Loan deeds, known as uninapanna, continued to be executed during this period, indicating the persistence of formalized lending practices.
• Money Lending and Interest: Later Sutra texts (700-100 BC) and the Buddhist Jatakas (600-400 BC) provide more frequent and detailed references to money lending and interest payment, suggesting a growing complexity in financial transactions.

Gautama Dharmasutra and Money Lending:

• The Gautama Dharmasutra identifies money lending as one of the four primary occupations of the Vaishyas, indicating the significance of this profession in society.
• It also mentions that money-lenders had the authority to establish rules for their trades, reflecting an early form of corporate organization within the profession.

Introduction of Coinage and Money Lending:

• The introduction of coinage, particularly punch-marked coins, marked a significant advancement in trade and commerce.
• With the advent of money, money lending became a more prominent and organized activity. Pali texts from this period contain numerous references to money lending, credit instruments, and various practices associated with debt, such as pawning possessions and even pledging family members in extreme cases of bankruptcy.
• Interestingly, debtors were prohibited from joining the Buddhist sangha (monastic community) until they settled their debts, underscoring the seriousness of financial obligations during this time.

Role of Setthis (Sresthins):

• Pali texts also highlight the role of Setthis (Sresthins), high-level businessmen involved in trade and money lending.
• These individuals played a crucial role in financing traders, merchant adventurers, and even kings during times of war and financial crises, showcasing the integral part they played in the economy.

Changing Attitudes Towards Usury:

• During this period, there was a noticeable shift in societal attitudes towards usury and money lending.
• For instance, the sage Vasishtha admonished higher castes, particularly Brahmanas (priests) and Kshatriyas (warriors), against engaging in money lending.
• Additionally, the Jatakas often depicted money lending in a negative light, reflecting the emerging sentiments of contempt towards usurious practices.

In summary, the Post-Vedic period from 600 to 300 BC was a time of significant economic evolution in India. The practices of money lending, trade, and the introduction of coinage played a crucial role in shaping the early financial landscape of the country.

Mauryan Period (3rd – 2nd Century BC)

Kautilya’s Arthashastra:

• Sets the maximum legal interest rates at 15% for secured loans and up to 60% for unsecured loans.
• Interest rates could escalate to 120% to 240% per annum based on risk factors, regardless of caste.

The Dharmashashtras:

• Align with the Arthashastra but emphasize caste in money lending.
• Allow the Vaishya caste to engage in money lending and set interest rates between 15% to 60% for unsecured loans based on the borrower’s caste.

Urban Economy and Money Lending:

• The urban economy and the rising use of money as a medium of exchange promoted money lending practices.
• Contrary to Megasthenes’ assertion, Indians did engage in borrowing and lending money with interest.

Post-Mauryan Period (200 BC – 300 AD)

Growth of Guilds:

• Increase in the number of guilds during this period, with inscriptions indicating their role as bankers, paying interest on invested money.
• Examples of such inscriptions include Mathura, Junnar, and Nashik.

Manusmriti:

• Stipulates that interest rates exceeding the legal limit cannot be recovered, categorizing such lending as usurious.
• Money lending is recognized as a legitimate business activity.
• Among the seven modes of acquiring wealth, money lending is included:
• Inheritance
• Gift from a friend and depositor
• Purchasing
• Conquering
• Money lending
• Labour
• Presents from the good

Manusmriti sets the legal interest rates as follows:

• 2% per month for Brahmins
• 3% per month for warriors
• 4% per month for merchants
• 5% per month for Sudras

Prohibition of Exorbitant Interest:

• Lending money at rates above the stipulated interest is considered a sin.

Maximum Interest Guidelines:

• Gautama, Vishnu, and Manu agree that the interest amount should not exceed the principal.
• They provide specific maximum interest rates for certain goods like grains, fruits, wool, gold, and clothes.

Ushavadata Inscription:

• Records the interest rates set by two weavers’ guilds in Govardhana (Nasik) as 12% monthly and 9% annually, which are lower than the standards in the Arthashastra and Smritis.

Gupta and Post-Gupta Period

Narada Smriti:

• Describes money acquired through usury as 'spotted wealth' and 'black wealth'.

Dharmashastra Texts:

• Provide detailed regulations on usury, including contract formulation, the influence of local customs on interest rates, and types of pledges acceptable as loan security.
• Advocate a general interest rate of 15% per annum for secured loans, with significantly higher rates for unsecured loans, varying based on the borrower’s varna.

Brihaspati Smriti:

• States that if an immovable property like land has yielded more than the principal, the debtor should automatically reclaim the pledge.

Consequences of Loan Default:

• Defaulting on a loan has repercussions in the next life, with the Narada Smriti claiming that the debtor will be reborn as a slave in the creditor’s household to repay the debt through labor.

Discussion of Money-Lending:

• The extensive examination of money-lending, including joint money-lending ventures, indicates a context where money was actively used, borrowed, and lent for profit.

Senakapat Inscription:

• Indicates that ascetics should not lend for the purpose of earning interest and making profits.