RATE OF INTEREST IN ANCIENT INDIA:

A WAY TOWARDS FINANCIAL INCLUSION AND SUSTAINABLE DEVELOPMEN WITH SPECIAL REFERENCE TO MANU SMRITI AND KAUTILYA’S ARTHASHASTRA

RANJAN B U, Research Scholar , Mandavya Research and Development Centre , Mandya

 

It seems to me that before we can appreciate Swaraj, we should have not only love but passion for Swadesi. Every one of our acts should bear the Swadesi stamp. . . There could be several methods to improve our economy and commerce of the country. It requires expert planning, but it should be rooted in Swadesi thought*

*Said - Dr. M Rama Jois, Former Chief Justice of Punjab & Haryana High Court, Former Governor of Jharkhand & Bihar, in national conference on 18th November 2004 at Center for Inter-Disciplinary Studies and Research in Sanskrit, Canara College, Mangalore.

 

INTRODUCTION

In the matter of economic development of our country, it should be based on our own basic philosophy and structure laid down by our ancestors from the time immemorial.

By studying our ancient philosophy, astonishingly, I found the concepts of charging interest in ancient India. Among which Manu smriti & kautilya’s arthashastra inspired me to develop this concept.

 

The Manu’s conception on rate of interest based on Varna system (division of society based on work) which was surprisingly resulted in financial inclusion, but kautilya’s arthashastra concerned more on administrative aspects than that of personal laws, which give raises to sustainable development in those days.

OBJECTIVE OF THE STUDY

To reveal the concept of rate of interest in ancient India.

To divulge Manu’s rate of interest and its connection with financial inclusion.

To study Kautily’s rate of interest in his Arthashastra and how it results in sustainable development.

SCOPE OF THE STUDY:

This paper narrowly focuses on versatile aspects of Rate of Interest in ancient India based on Manu Smriti & Kautilya’s Arthashastra and its stages, imposition of fines for disputes in associated with ROI, Invalid surety of minor and Exception for the payment of interest under different circumstances

METHODOLOGY

This paper is based on a qualitative research methodology called Hermeneutics.

Hermeneutics are related to the name of the Greek god Hermes, in his role as the interpreter of the messages of the gods.

Current context, hermeneutics can be described as the interpretation and understanding of ancient literature and religious texts.

Under this methodology, the references or notes were stated in its original text where ever it requires.

LIMITATIONS

The study is micro in nature extends only to the concept of ROI in ancient India.

The study restricted its references only to Manu Smriti & Kautilya’s Arthashastra.

The study is at an introductory stage and not addresses the deepest and most critical aspects in detail.

TERMINOLOGY

RATE OF INTEREST : An interest rate is the rate at which interest is paid by borrowers (debtors) for the use of money that they borrow from lenders (creditors).

FINANCIAL INCLUSION :Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society.

SUSTAINABLE DEVELOPMENT :Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

MANU-SMRITI :Manu-smriti, (Sanskrit: “Laws of Manu”) traditionally, the authoritative of the books of the Hindu code (Dharma-shastra) in India.

ARTHASHASTRA :The Arthashastra is an ancient Indian treatise on statecraft, economic policy and military strategy, written in Sanskrit. It identifies its author by the names "Kauṭilya“. 

MANU’S RATE OF INTEREST

The law of Manu (manu smriti), is the most important and earliest metrical work which authorizes the practice of charging interest on borrowing.

Manu’s Rate of Interest (ROI) is based on varna System, a quadruple division of society based on an occupation performed, it is not to be confused with the much coarser Cast System in India.

The scheduled ROI is established on the grounds of social states of a borrower rather than the level of risk involved or the purpose of the loan.

just two in the hundred, three, four, and five (and not more), he may take as monthly interest according to the order of the varna ( 8.142)

Brahmana (The Thinker or Scholar) was charged – 2 % p.m – 24% p.a

Ksatriya (The Leader) was charged – 3% p.m – 36% p.a

Vaisya (The Profit Minded) was charged – 4% p.m – 48% p.a and

Shudra (The Worker) was charged – 5% p.m – 60% p.a

why it is discriminatory in nature with high rate of interest and will it results in financial inclusion?

Neither a Brahmana, nor a Kshatriya must lend (money at) interest. . . . .(10.117)

By this statement, it is clear that, only Vaisya & Shudra were given authority to lend money at interest and make profit.

Brahmana ,The thinker, who is expected to devote his lifetime for learning and teaching; Likewise Ksatriya, The Leader, who is also expected to devote his lifetime by offering protection to the society, They never carry out any such business which results in Profit.

The scheduled ROI is established on the grounds of social states of a borrower rather than the level of risk involved or the purpose of the loan.

We think that the Manu’s ROI is very high, logically, Manu ordains not take interest beyond the year, nor such as is unapproved, nor compound interest, periodical interest, stipulated interest, and corporal interest (8.153)

one of the interpretation of manu Smriti states that the interest payable beyond one year is prohibited, even if the money due is paid by the debtor after 2 or 3 years.

Interest beyond one year was considered as redundant. If the debtor is unable to pay a debt (at the fixed time), wishes to make a new contract, may renew the agreement, after paying the interest which is due. (8.154)

Manu’s ROI results in financial inclusion by charging a minimum rate of interest to Brahmana & the Ksatriya class of people whose socioeconomic status were speculative on those days. He enacts that the interest should not take beyond the year.

In order to justify the Vaisya & Shudra class of people he made a rule that neither a brahmana, nor a kshatriya must lend money at interest by which only the vaisya & shudra classes were authorized to lend money for interest and to make reasonable profit.

Manu strongly held the view that, if the debtor is dead and the money borrowed was expended for the family, it must be paid by the relatives out of their own estate even if they are divided. (8.166)

KAUTILYA’S RATE OF INTEREST

Unlike Manu’s Rate of Interest, Kautilya in his Arthashastra gave significance to the level of risk involved or the purpose of the loan rather than the socioeconomic status of the borrower.

Kautilya does not give importance to varna System and he hasn't linked the interest rates with Varna.

THE ANNUAL INTEREST RATE STRUCTURES FOR VARIOUS CATEGORIES OF BORROWERS IN KUTILYA’S ARTHASHASTRA ARE TO BE:

For non-commercial loans - 15%

For less risky commercial loans - 60%

For risky commercial loans - 120% and

For foreign trade - 240%

It is found that the rate of interest on loans for foreign trade (240% per annum) was much higher than that of loans for internal trade.

The most feasible explanation for the highest rate of interest for foreign trade is the concern for sustainable development along with the high risk factor used to play a dominant role in those days.

In Kautilya’s Arthashastra there is an additional focus on maintain and to improve the planetary resources for use by future generations.

Kautilya never concerned much with the human laws, like Manu, but he gave significance on the administrative aspects of Muryan Kingdom.

Minor’s surety is invalid:

Kautilya states that, the minor’s surety is invalid (na prátibhávyamanyat), minor’s surety is inefficient (bálaprátibhavyam asáram6= surety of a minor is not strong), Even today, we can find the same practice in current banking transactions.

EXEMPTION FROM THE PAYMENT OF INTEREST

Interest on debts due from persons who are engaged in sacrifices taking a long time (dírghasatra), or who are suffering from disease, or who are detained in the houses of their teachers (for learning), or who are either minors or too poor, shall not accumulate.

If the creditor’s refusal to receive the payment due to some reasonable cause, then the amount free of interest for subsequent time shall be kept in the safe custody of others.

Cultivators or government servants shall not be caught holding off for debts, while they are engaged in their duties or at work.

FINDINGS

It is found that, the Manu’s ROI is based on Varna System having differential and high rate of interest for quadruple classes of people which results to financial inclusion.

Kautilya in his Arthashastra, while charging interest rate, gave significance to the level of risk involved or the purpose of the loan rather than the socio-economic status of the borrower. This gave rise to sustainable development of country’s economy of those days.

The imposition of fines for disputes in associated with ROI, Invalid surety of minor and Exception from the payment of interest under different circumstances were found out.

 SUGGESTION

It is suggested to embark on mysterious study and interpretation of our sacred scriptures, in order to enhance the ROI and allied concepts.

It is also suggested to consider our ancient ideology in policy and decision making process to improve our country’s economy and commerce rooted with Swadesi thoughts.

CONCLUSION

Eventually, I would like to conclude my paper by citing Swami Vivekananda:”The more, therefore, the Hindus study the past, the more glorious will be their future, and whoever tries to bring the past to the door of everyone, a great benefactor to his Nation. The degeneration of India came not because the laws and customs of the ancients were bad, but because they were not allowed to be carried to their legitimate conclusion (CW. 4.324)”