Moneylending

An important element in the economic
activity of the traditional and modern
Indian merchant families. Since farmers
have profits only after the harvest, they
must be able to borrow during the other
times of the year. In modern times many
farmers borrow from banks, but in
earlier times their only resource was
these merchant families. Their interest
rates usually reflected the borrower’s
credit worthiness: unsecured loans
might have interest rates as high as 30 to
50 percent per year because there was a
good chance for default, whereas the
interest on loans secured by collateral
might be as low as seven percent. To
some extent, these moneylending merchants were economically bound to
their farmer-creditors, with one providing the capital and the other providing
the labor. Moneylenders could not
refuse credit to farmers after a bad year,
since this would have removed any hope
of future repayment. For further information see Christopher Alan Bayly,
Rulers, Townsmen and Bazaars, 1983.