Que. On the basis of contemporary sources assess the nature of banking and usuary in ancient India. 

प्रश्न: समकालीन स्रोतों के आधार पर प्राचीन भारत में बैंक व्यवस्था तथा सूद प्रथा (कुसीद प्रथा) की समीक्षा कीजिए।

Introduction:

With increase in economic activities there was growing importance of the Monetary system and banking in Ancient India. Megasthenes in his seminal work ‘Indica’ argued that Indian didn’t charge interest is now understood by the scholars as false as the manusmriti and Arthashastra provide various interest rates. Further Jatakas and Jain texts mention the banking activity as the followers were engaged in the same.

Based on contemporary sources, the nature of banking and usury in ancient India can be assessed as follows:

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

The Shatapatha Brahmana, an ancient text, provides the earliest reference to money lending by mentioning a usurer called Kusidin, who is identified as a lender charging interest. While the term indicates the practice of lending at interest, there is no clear evidence that money lending was established as a professional field during this period.

Loan deeds, known as rinapatra or rinalekhya, were used to formalize transactions. These documents included essential details such as the names of the borrower and lender, the loan amount, interest rate, repayment terms, and schedule. They were validated by a respected witness and endorsed by a scribe.

Overall, the evidence for money lending practices in the Early and Later-Vedic periods is limited and inconclusive, providing only sparse insight into the financial practices of the time.

(2) Post-Vedic Period (600-300 BC) – Beginning of 2nd Urbanisation

During the Post-Vedic Period (600-300 BC), loan deeds continued to be executed, now referred to as inapanna. This era saw more frequent and detailed references to money lending and interest in later Sutra texts (700-100 BC) and the Buddhist Jatakas (600-400 BC). These texts highlight the growing importance and complexity of money lending practices.

By the 5th century BC, Buddhist writings and new archaeological findings reveal that associations or guilds were actively engaged in various commercial and industrial activities. In these guilds, the Shrenis or bankers held prominent roles, with significant influence in their communities. The Pali texts mention Setthis or Sresthins, high-level businessmen involved in trade and money lending.

These financiers were crucial in supporting traders, explorers, and kings, particularly during times of war or financial stress. The Gautama Dharmasutra lists money lending as one of the four traditional occupations of the Vaishyas and suggests that money-lenders had authority to set professional rules, indicating a degree of corporate organization.

The introduction of coinage, such as punch-marked coins, further advanced money lending. Pali texts frequently mention this profession, including instruments of credit and practices like pawning possessions, pledging family members, and bankruptcy. Debtors were even barred from joining the Buddhist sangha until their debts were settled.

During this period, attitudes towards usury began to shift. For instance, Vasishtha prohibited Brahmanas and Kshatriyas from engaging in money lending, while the Jatakas depicted it in a negative light, criticizing those who practiced it under the guise of asceticism.

(3) Mauryan Period (3rd – 2nd Century BC)

During the Mauryan period (3rd – 2nd Century BC), a financial instrument called adesha was used. This instrument functioned like a modern bill of exchange, instructing a banker to pay a specified amount to a third party. The use of such instruments became widespread, with merchants in large towns exchanging letters of credit and various promissory notes.

Buddhist texts from this era frequently discuss money lending practices, both with and without interest. Secured loans were common, with borrowers pledging assets or providing sureties. Kautilya’s Arthashastra set the maximum legal interest rates at 15% for secured loans and up to 60% for unsecured loans, though rates could escalate to 120% or even 240% under certain high-risk conditions.

The Dharmashastras, while agreeing on the basic framework of interest rates, introduced caste-based variations. They allowed only the Vaishya caste to engage in money lending and set interest rates based on the borrower’s caste.

The urban economy and growing use of money further stimulated money lending practices. Contrary to Megasthenes’ claim, evidence shows that lending and borrowing at interest were prevalent in ancient India.

(4) Post-Mauryan Period (200 BC-300 AD)

During the Post-Mauryan Period (200 BC-300 AD), there was a notable rise in the number of guilds, which increasingly operated as bankers and paid interest on invested funds. Inscriptions from places like Mathura, Junnar, and Nashik reflect this trend.

The Manusmriti prescribed that any interest rate exceeding the legal limit was deemed usurious and thus non-recoverable. Money lending was officially sanctioned in Dharmashastra texts like Manusmriti, which recognized it as one of seven acceptable means of acquiring wealth, alongside inheritance, gifts, purchases, conquest, labor, and presents.

The Manusmriti set legal interest rates at 2% per month for Brahmins, 3% for Kshatriyas, 4% for merchants, and 5% for Sudras. Lending beyond these rates was considered a severe offense, comparable to other significant transgressions, and could result in loss of caste.

The Laws of Manu mandated that interest should not exceed the principal amount and established maximum rates for specific commodities. The Ushavadata Inscription noted that weavers’ guilds in Govardhana (Nasik) charged lower rates of 12% monthly and 9% annually compared to those outlined in the Arthashastra and Manusmriti.

(5) Gupta and Post-Gupta period

In the Gupta and Post-Gupta periods, the Narada Smriti criticized money obtained through usury as ‘spotted wealth’ or ‘black wealth,’ reflecting its negative perception. Dharmashastra texts from this era detailed regulations on usury, including the creation of contracts, the influence of local customs on interest rates, and acceptable types of collateral for loans.

Secured loans typically carried a standard interest rate of 15% per annum, whereas unsecured loans had significantly higher rates, which varied depending on the borrower’s varna, with lower varnas facing higher interest charges. The Brihaspati Smriti mentioned that if an immovable property like land yielded returns exceeding the principal, the debtor should automatically regain the pledge.

Defaulting on loans was believed to have repercussions in the next life, with the Narada Smriti suggesting that debtors might be reborn as slaves in the creditor’s household to repay the debt through labor. The period’s texts, including those discussing joint money-lending ventures, indicate that money lending was a profit-driven activity. The Senakapat Inscription advised that ascetics should not engage in money lending for interest or profit.

Conclusion:

Contemporary sources suggest a structured financial environment in ancient India that aimed to strike a balance between facilitating economic activities and preventing exploitative lending practices. While usury existed, there were attempts to regulate it, highlighting the importance placed on ethical financial transactions in ancient Indian society.