A quick visit to our website is all it takes to discover that, at peer-to-peer lender Unbolted, our niche offering in the alternative finance space is a low-interest secured asset loan. But secured asset loans didn’t arise like the morning sun. They were created by living, trading human beings. We thought it might be interesting to take a brief look at the history of this method of borrowing. Relax, pour yourself a brew or a glass of wine (depending on what time of day you’re reading this), and come with us on our little historical foray.
The history of lending isn’t particularly well-documented, as it happens, but most financial historians believe that borrowing one kind of commodity against another began being practised by human beings thousands of years ago. As far as written evidence goes, the earliest loan contracts date back more than three thousand years to ancient Mesopotamia. The documents that have survived the ensuing millennia occasionally make reference to interest and a functioning credit system, but it’s not clear from these ancient written contracts whether the modern sense of collateral was in use.
Again, historians have used educated guesses to fill in the blanks, and most believe that the earliest kind of collateral was an indentured loan, in which impoverished labourers pledged their services in exchange for borrowing what they needed. Grimly from our modern perspective, it’s highly probable that in many cultures, slaves were used as collateral, and in ancient Greek city-states (chiefly in temples), lending with labour was pervasive.
Meanwhile, during the Roman Empire, it was commonplace for feudal lords and wealthy landowners to use their land and property as collateral for borrowing money. For other less-wealthy borrowers, other forms of secured lending were available – they simply offered one or more of their possessions as collateral for the borrowed funds.
This was a surprisingly modern financial practise, with additional fees being charged as a form of interest for longer loan periods. As with Unbolted, once the agreed period had marked and the funds repaid, borrowers simply retrieved the secured items from the lender.
However, a financial scandal of sorts developed in the final years of the empire, when lending migrated from politically connected elites to small businesses. Interest rates started to soar exponentially. The Catholic Church denounced this as usury in the fourth century.
To this day, modern free market economies have usury laws, which specifically target the practice of excessive rates on borrowed funds by setting caps on the maximum interest that it is permissible to levy.
Indentured loans remained common throughout Europe until the 1800s, with the most spectacular in history occurring in 1824: Greek forces fighting for independence from the Ottoman Empire pledged “the whole of the national property of Greece” in exchange for funds to wage their battles. After winning independence and making the biggest land collateral pledge ever made, alas, Greece was to default on those loans.
Next time, we’ll explore the historical advent of secured asset loans made by banks. See you then.
