Money Lending in Ancient India
Money lending in ancient India has a documented history stretching from the earliest Vedic references to the Kusidin (usurer) in the Shatapatha Brahmana, through detailed regulatory frameworks in the Arthashastra and the Dharmashastras, down to the elaborate rules on interest, pledges, and usury found in Gupta-era legal texts. For UPSC History Optional aspirants, this topic is valuable for its wealth of specific, citable detail — precise interest rates by period and caste, named inscriptions recording guild banking activity, and evolving social and legal attitudes toward usury — making it a rich source of exam-ready facts across the length of ancient Indian history. This article traces the practice of money lending period by period, from the Early Vedic age through the Gupta and post-Gupta period.
Early Vedic and Later-Vedic Period (1500 BC – 600 BC)
- The earliest reference to money lending occurs in the Shatapatha Brahmana, which describes a usurer (money lender) as Kusidin; the word Kusidin is mentioned several times and interpreted as “money lender at interest.”
- In addition, loan deed forms called rinapatra or rinalekhya were in use. These contained details such as the name of the debtor and the creditor, the amount of the loan, the rate of interest, the conditions of repayment, and the time of repayment.
- The deed was witnessed by a person of respectable means, and endorsed by the loan-deed writer.
- However, the evidence of money lending in this period is quite meagre and far from conclusive.
Post-Vedic Period (600 BC – 300 BC): Beginning of the Second Urbanisation
- Execution of loan deeds continued during this period, when they were called inapanna.
- More frequent and detailed references to money lending and interest payment are found in the later Sutra texts (700–100 BC), as well as the Buddhist Jatakas (600–400 BC).
- The Gautama Dharmasutra mentions money lending as one of the four occupations of the Vaishyas; it also states that money-lenders had the authority to lay down rules for their profession, suggesting an element of corporate organisation.
- The emergence of coinage (punch-marked coins) and the beginnings of a money economy also gave further impetus to money lending.
- Pali texts contain many references to this profession, instruments of credit, people pawning their possessions, the occasional pledging of a wife or children by debtors, and bankruptcy; debtors were, in fact, debarred from joining the Buddhist sangha until they had paid their debts.
- The Pali texts refer to Setthis (Sresthins) as high-level businessmen associated with trade and money-lending; their main function was to finance traders, merchant adventurers, and kings in times of war and other financial crises.
- It is during this period that the first sentiments of contempt for usury are expressed: for example, Vasishtha forbade the higher castes — the Brahmanas (priests) and Kshatriyas (warriors) — from becoming money lenders; the Jatakas likewise refer to money lending in a demeaning manner.
Mauryan Period (3rd – 2nd Century BC)
- Kautilya’sArthashastra prescribes a maximum legal rate of interest of 15% on secured loans and up to 60% on unsecured loans, without any discrimination by caste — though the rate could rise to 120–240% per annum according to the risk involved in special circumstances.
- The Dharmashastras are in general agreement with the Arthashastra, except that they introduce caste as an important factor in money lending: they lay down that a particular caste (the Vaishya) may take up the profession of money lending, and prescribe a variation from 15% to 60% interest on unsecured loans according to the caste of the borrower.
- The urban economy and the increasing use of money as a medium of exchange gave further impetus to the practice of money lending; Megasthenes was mistaken in stating that Indians neither borrowed nor lent money on interest.
Post-Mauryan Period (200 BC – 300 AD)
- During this period, there was a significant increase in the number of guilds, and inscriptions indicate that guilds functioned as bankers and paid interest on money invested — for example, the Mathura inscription, the Junnar inscription, and the Nashik inscription.
- According to the Manusmriti, an interest rate stipulated beyond the legal rate cannot be recovered, as it constitutes a usurious way of lending.
- In Dharmashastra texts such as the Manusmriti, money lending was an approved line of business. Among the seven modes of acquiring wealth, money lending finds a place: (i) inheritance; (ii) gift from a friend and depositor; (iii) purchasing; (iv) conquering; (v) money lending; (vi) labour; and (vii) presents from the good.
- The Manusmriti fixes the legal rate for money lending at 2% per month if the borrower was a Brahmin, 3% per month for a member of the warrior caste, 4% per month for a merchant, and 5% per month for a Shudra.
- According to the Manusmriti, lending money above the stipulated rate of interest is a sin.
- Gautama, Vishnu, and Manu all agree that the interest amount must not exceed the principal amount; they provide for maximum interest at special rates in the case of selected articles, such as grains, fruits, wool, gold, and clothes.
- The Ushavadata inscription mentions that two weavers’ guilds at Govardhana (Nasik) stipulated to pay interest at rates of 12% and 9%, monthly and annually respectively — both lower than the standard rates mentioned in the Arthashastra and the Smritis.
Gupta and Post-Gupta Period
- The Narada Smriti refers to money gained through usury as “spotted wealth” and “black wealth.”
- Dharmashastra texts of the time lay down detailed rules concerning usury, including the drawing up of contracts, the role of local custom in fixing rates of interest, and various kinds of pledges that could be accepted as security for loans.
- A general rate of 15% per annum interest is advocated for secured loans; the rates of interest for unsecured loans are much higher, and vary with the varna of the borrower, with members of the lower varnas required to pay higher interest rates.
- The Brihaspati Smriti states that when a piece of immovable property, such as land, has been enjoyed and has yielded more than the principal, the debtor should automatically recover the pledge.
- The effects of defaulting on a loan are said to pursue the debtor into his next life: the Narada Smriti asserts that a person will be born as a slave in the house of his creditor, in order to pay off the debt through his labour.
- The detailed discussion of money-lending — including the mention of joint money-lending enterprises — clearly points to a context in which money was being used, borrowed, and loaned for profit.
- The Senakapat inscription gives information related to money lending: it states that ascetics are not supposed to lend money for the sake of gaining interest and making profits.
