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International history of money lending: from debt slavery to banks

Over the course of time, loans have become a significant part of our everyday lives. There are some people who either consciously stay away from debts or simply do not need to borrow any money. Many others cannot possibly manage their finances without credit cards or bank loans. You may have wondered where the whole banking system comes from. Of course, it is impossible to trace the whole process of credit evolution from ancient times to the modern day and find out who the first lender and borrower in history were. And still, let us try to touch upon certain landmark events and explore the worldwide history of money lending.

The basic concept of loans dates back to the remote past, or more precisely, the 6th century before the Common Era. Before the set of economic relief reforms introduced by Athenian lawmaker Solon, personal loans were widespread among the Greeks, which implied that borrowers were forced to offer their labor power if unable to repay debts. However, when Solon prohibited debt enslavement, Greek debtors could no longer be deprived of their freedom and held to servitude. Instead, defaulted debt obligations had to be settled with a borrower's property.

The first loans in the history of mankind originated out of pressing need rather than as attempts to make profit. For instance, poor peasant families that failed to reap enough harvest from their fields had to borrow grains from wealthier neighbors. For one borrowed sack of grain, a debtor was obliged to bring two sacks in return after the next harvest was gathered.

Loans emerged well before the development of exchange markets and money systems. A borrower unable to pay off a debt could lose his property. If he did not own any, he had to settle his loan somehow in a different way, e.g. by working for his creditor.

In the Middle Ages, indirect loans became increasingly popular. The so-called usury, that is the practice of charging high interest rates on loans with a view to make profit at the expense of borrowers, was regarded as a sin and was strictly condemned by the Catholic church. In the 14th century, Italian bankers invented promissory notes to get around the ban of usury. These represented a written promise to pay a certain amount of money with or without interest at a stated time.

Throughout the medieval times, the scope of money lending was quite limited due to religious restrictions and the lack of an organized banking system. However, the periods of Renaissance and Enlightenment saw bank crediting growing exponentially. During the Renaissance, loans came to be legalized completely. The first commercial banks were established in Europe in the 16th century to become professional participants of the loaning market. They provided lending services mostly to large manufacturers and merchants while regular citizens still preferred retail brokers and pawn shops. Relations between lenders and borrowers in Western and Eastern Europe as well as in Asia were similar. Wealthy nobles and gentry who defaulted on payments were sometimes forced to sell their land and manors, while poorer folks often had to pawn the last clothes they had to get a few coins.

State authorities eventually stepped back from trying to ban debt operations, yet tried to keep these under control. Among the first public credit institutions in Russia were two imperial loan banks for nobles and merchants founded in Petersburg and Moscow. As well as in Europe, in the Russian Empire loan disbursement was an exclusive privilege for the wealthy elite and gentry class.

The contemporary history of banking in Russia began in 1988-1989. This was the time when the country was undergoing a transition towards a market economy. Many banks provided money loans at the time, but the growth period did not last long. The wild 1990s was a stormy decade for the country, and banks were often unable to lend money to customers due to hyperinflation.

By now, the industrial world has shaped a new culture called a mass consumption society, with a relatively predictable economic environment that allows almost everyone to borrow money and easily repay major and minor debts thanks to stable income. Nevertheless, before making the decision to get a bank loan, you need to carefully consider all financial details and pitfalls. Avoid overindulging in debt. Remember that there are more ways to get into debt than there are ways to pay it off.

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