Sources of Ancient Indian History:

Que. On the basis of contemporary sources assess the nature of banking and usuary in ancient India. [UPSC CSE-2013]

Introduction:

Banking and usury in ancient India, as revealed by texts like the Arthashastra, the Dharmashastras, and various inscriptions, showcase an advanced financial system. These sources highlight the structured practices of deposits, loans, interest rates, and regulatory measures, reflecting a sophisticated economic landscape crucial for trade and societal development.

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

The earliest reference to money lending occurs in Shatapatha Brahmana which describes a usurer (money lender) as Kusidin. The word Kusidin is mentioned several times and interpreted as money lender at interest. But whether banking was followed as a profession, is not evident.

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 loan, the rate of interest, the condition 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 (600-300 BC) – Beginning of 2nd Urbanization:

Execution of loan deeds continued during this period and they were called inapanna. More frequent and detailed references to money lending and interest payment were found in the later Sutra texts (700-100 BC), as well as the Buddhist Jatakas (600-400 BC).

From the 5th century B.C. the Buddhists’ works and the recent archaeological discoveries reveal the existence of associations or guilds carrying on various commercial and industrial activities.

The Shrenis or bankers occupied prominent positions in these guilds. In many places the Shreshthis had great influence. The Pali texts refer to Setthis (Sresthins) as a high-level businessman associated with trade and money-lending.

The main function was to finance the traders, merchant adventurers, who went out of their countries or explorers, who traversed seas and forests in search of valuable materials and the kings in the times of wars and other financial stress.

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 professions. This suggests an element of corporate organization.

The emergence of coinage (punch-marked coins) and beginning of money also ushered in money lending. Pali texts contain many references to this profession, instruments of credit, people pawning their possessions, the occasional pledging of wife or children by debtors, and bankruptcy. Debtors were in fact debarred from joining the Buddhist sangha until they had paid their debts.

It is during this period that the first sentiments of contempt for usury are expressed. For example, Vasishtha, forbade the higher castes of Brahmanas (priests) and Kshatriyas (warriors) from being money lenders. Also, in the Jatakas, money lending is referred to in a demeaning manner: “hypocritical ascetics are accused of practicing it.”

Mauryan Period (3rd-2nd Century BC):

In the Mauryan period, an instrument called adesha was in use, which was an order on a banker desiring him to pay the money of the note to a third person, which corresponds to the definition of a bill of exchange as we understand it today.

During the Buddhist period, there was considerable use of these instruments. Merchants in large towns gave letters of credit to one another. There are also numerous references to promissory notes.

Buddhists’ texts abound in references to the practice of lending money on or without interest. The more common practice of lending money on interest, the loans being secured by mortgage, by pledge or movable or by surety.

Kautilya’s Arthashastra prescribes maximum legal rate of interest on secured loan as 15% and on unsecured upto 60%, without any discrimination to caste, though the rate might go up to 120% to 240% per annum according to the risk involved in special circumstances.

The Dharmashashtras 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) can take the profession of money lending and they prescribe a variation from 15% to 60% interest on unsecured loans according to caste of borrowers.

Urban economy and Increasing use of money as a medium of exchange gave further impetus to practice of money lending. Megasthenes was wrong in stating that Indians did not borrow or lend 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 the money invested. For example: Mathura inscription, Junnar inscription, Nashik inscription etc.

According to Manusmiriti, stipulated interest rate beyond the legal rate cannot be recovered, it is a usurious way of lending.

In Dharmashashtra like 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 (vii) Presents from the good.

Manusmiriti fixes legal rate for money lending as 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 Sudra.

According to Manu Smriti, lending money above the stipulated rate of interest is a sin on a par with defiling a damsel, breaking a vow, selling a tank, a garden, one’s wife, or child; loss of caste is the punishment.

In the Laws of Manu of that time: “Stipulated interest beyond the legal rate being against the law, cannot be recovered.”

Gautama, Vishnu and Manu agree that interest amount must not exceed principal amount. They provide for maximum interest at special rates in case of selected articles like grains, fruits, wool, gold, clothes etc.

Ushavadata Inscription mentioned that 2 weavers’ guild at Govardhana (Nasik) stipulate to pay interest rate of 12% and 9% monthly and annually respectively, which are lower than the standard rate mentioned in Arthashastra and 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 cent 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, members of the lower varnas being required to pay higher interest rates.

The Brihaspati Smriti states that when a piece of immoveable property such 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 in 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.

Senakapat Inscription gives information related to money lending. It says that ascetics are not supposed to lend for the sake of gaining interest and making profits. 

Conclusion:

Contemporary sources such as the Arthashastra, Dharmashastras, Sangam literature, and inscriptions reveal that ancient India’s banking and usury practices were well-regulated and integral to its economy. These practices facilitated trade and commerce, provided access to credit, and contributed to economic development. 

The ethical considerations and regulatory frameworks established in ancient India highlight the sophisticated understanding of financial management in that era, underscoring the importance of banking and usury in shaping the economic landscape of ancient Indian society.