How Loans Started
“To loan or not to loan”
age-old question is whether to loan money or not to loan money. And
if you do, should you charge interest. Philosophically, there are 3
schools of thought. One says that if you lend someone money, don’t
expect repayment. The borrower needs the money badly,
and if someone loans money, they should do so for no reason other
than benevolence, and they should never "expect" repayment.
borrower may promise repayment, but if they fall on hard times and
cannot repay the loan, the lender should accept that fact. The
thinking being that the lender should never have lent out the money
if they couldn’t afford to lose it in the first place. It’s the
same mentality as taking your money to the casinos of Las Vegas.
philosophy is that if money is lent out, then it must be repaid.
But no interest should be collected. Most people
feel bad about having to borrow money in the first place. There's no
need to make them feel worse by hounding them for interest. It’s
like lending a rake to your neighbor. When he’s finished, he’ll
return it. You don’t charge him interest.
And of course, the 3rd philosophy, and the one we
have come to embrace is the aspect of the commercial, business or
personal loan tied directly to repayment plus interest. This is
what banks and loan companies generally subscribe to.
But when did all the money
The First Money
Money, both in the paper and coin
form, is not the original way humans bought things. If fact, money
as we know it today is rather a recent concept. In the past,
civilizations would trade cattle or grain. And that was all well
and good if you want cattle or grain in exchange.
But what happened when the person who has
what you need did not want what you have. There had to be some form
of currency that could be traded in those circumstances. Something
of real value, a currency that everyone could agree on.
African tribes traded bright
metal objects call Manillas, Canadian natives traded beads and
beaver pelts, while other civilizations have traded animal teeth,
ivory, and feathers, to name a few. As long as the people think that
these things have value, then everything is fine.
Tally sticks were introduced by
King Henry the First around 1000 AD. They were basically sticks of
polished wood with notches cut out of them to indicate the
denomination. The stick was then split down the middle, with the
king keeping half of the stick to prevent against counterfeiting.
The king accepted these sticks
as payment for taxes, so the people had confidence that these sticks
value, and therefore traded
them for other goods and services. This practice continued for over
The First Banks
The earliest banks were not the
kind of banks that we know, but rather temples that were used to
store grain and other commodities for trade, way back in Mesopotamia
about 5000 years ago. The fundamental banking principles used there
and in Babylon, the birth place of banking, have remained relatively
the same until this present day.
Judah was captured by the
Babylonians about 650 B.C.. The Jewish people were taken to
Babylonia and held there for 70 years. While there, a man named
Jacob Egibi became one of the first known men to set up a business
for loaning out money for profit. Thus started the concept of
private banking. At the end of the captivity period, the Jewish
people were sent back to Judah, but because of the lucrative
business some had developed, some, like Jacob Egibi did not want to
This practice of loaning out
money, which evolved into Loan sharking with interest rates of
30%-50%, continued right up until the time of Christ. When the
Christian era became well established, right up until about 500
years ago, charging interest was banned.
fact, kings such as Alfred the Great, King of
England; 849-901 A.D. and James 1, King of England; 1566-1625 A.D.
had edicts that forbade taking interest, and men would be banished
from England if they were found taking a “usury fee”.
Let the Money Flow
Banks started to appear in
Britain from the mid-seventeenth century. They were started by
goldsmiths who not only made items with gold, but also began to look
after valuables and
lend money. Gold was a
heavy commodity to carry around, so people would store their gold
with the goldsmiths, and in return they would receive a receipt
indicating the value of gold stored. These were called bank notes,
and because they were easier to carry, they began to get traded like
money, and loaned out like money.
Big Business Today
During the early part of the twentieth century, the practice of
opening bank accounts for saving and to receive wages became very
popular. This was followed by many of the smaller banks disappearing
with large banks being established with many branches.
In the last 30 years, incredible
advances in technology have allowed us to save money and get loans
by telephone and through the internet. The business of loans is now
a well regulated business with many companies, besides bank,
offering their services.
About The Author
Diane French is a successful
freelance writer providing helpful tips and advice for consumers on
personal loans and
Her many years of mortgage industry experience have helped others
understand the business.
This article from "articles
for free" is reprinted with permission.
2004 - Articles-For-Free.com