A brief history of loans from antiquity to the present day

From the very beginning of human history, there were people who borrowed and people who lent. This form of relationship exists for a very long time, as long as the concept of private property exists.
The basis of these relations is the lending of extra resources (money or some other form of wealth) to someone who would find them a good application, but with the condition that the loan will be returned.
Initially, loans were lent between friends, but with the expanding growth of settlements and cities, a lot of these operations were conducted between two unfamiliar sides. The best guarantee of repaying a loan is to secure it with some kind of collateral.

Ancient Mesopotamia

The very first loans were lended in form of seeds. For the agricultural society seeds were a possession of the great value. One seed could yield a crop of hundred seeds, thus the interest was also returned in seeds. The same with livestock, the interest was paid with young animals. The Sumerian word “mash”, “interest” also means “calf”. There’s also some records about giving collateral-backed loans in Babylon. Pretty often it was the temples’ business.

Roman Empire

Roman Empire in many ways was the successor of Ancient Greece. In Ancient Greece also existed such a practice of lending money, mainly for maritime trade, and in case of success, the creditor had 25% of the profit. However, the loans were rarely secured with collateral backing. It was regarded exploitation rather than aid.
Roman Empire had several forms of lending secured loans. All these forms were described in the Roman law.
The lending of loan depended on transfer of rights to such property that could cover all creditor’s losses in the event that the debt is not properly repaid. This transfer of rights is called “a collateral”.
In Roman law, there were several forms of secure lending to reduce the risks of the lender.
The first and the most ancient was called fiducia. It was a temporary exchange of the borrower’s collateral against the lender’s money. The lender received this collateral as his property and had to return it when the borrower’s debt was fully repaid. He could sell the collateral only if the borrower wasn’t paying as it was promised.
The alternative was pignus. The collateral was given to the creditor in possession, but he had no right of ownership in this case. But anyway the borrower still wasn’t able to use it. In general, both these forms gave too much rights to the lender and did not allow to make profit on the pledged property during the period of the debt repayment.
The Romans used the Greek form of loans — a mortgage (hypoteca). With a mortgage, the debtor could use his property, for example, his own land, or his house, make a profit on it, and the lender could only claim the rights if the debt wasn’t paid.
The repledge, or taking another loan against the already pledged property, was considered a fraud and was punishable.

Ancient India

In India, lending was very popular. The first mention of loans was found in texts dated 2000 BC. But during this period usury was condemned. Charging interest above a certain percentage or different interest rates for different castes was considered a sin. The attitude towards it changed only in the second century AD. There was also an instrument called adesha, promissory notes between people.

Medieval Europe

In the Middle Ages, providing an interest-bearing loan and earning on it was forbidden by the Christian Church. It was allowed only to Jews who did not have such restrictions on usury and were providing loans to Christians.
This was also the business of the Church, bypassing its own dogmas. The Church manipulated the loan market: when it wanted to borrow at low interest, it strengthened the regulations, when it wanted, on the contrary, to lend money, it weakened the grip.
Often a method of working off a debt by labor was practiced: the borrower worked on the creditor’s land, sometimes all his life.

Russia

In Russia, secure lending was widespread, from ancient times to the 20th century. You could pledge almost anything, but only the owner could pledge its own property. Depending on the form of the pledge, the agreement could be verbal, and the thing was immediately given to the creditor’s possession, or written, in that case, a special contract had to be signed by two witnesses.
After the Revolution, with the coming of the Communists, all these forms of loans disappeared.

England in modern times

Collateral-backed lending advanced a lot in England with the development of banking. In the 18th century, London became the center of the financial world, and the issuance of loans was extremely profitable in the conditions of non-stop wars in Europe. The most important was to bet on the right horse in the armed conflict.
During this period it was allowed to pledge everything. Stocks, houses, lands. Many dealers mortgaged their property in order to buy additional stocks, thus increasing their capital on the growth of these stocks or going bankrupt during market crashes. A new concept of leverage was created. Overall, it provided a good opportunity to grow capitals really fast. On the other hand, when the loans were backed by the stocks, during the times of instability of financial markets, there were situations when the value of shares fell to a point where their value was less than the value of the money borrowed. In this case, the borrower was obliged to put more money on his account, or the creditor had to sell the borrowers at the current price. It was called “a margin call”.
In general, assets-backed lending began to flourish when the world became more globalized. In the 19th century, American markets began to develop, built on the same principles as the British ones. From the 19th century to the present day it still remains unchanged.

Present days

Secured lending in our days is popular as ever. Wherever you are, in America, in France, in India or in Russia, you can always get some amount of money by pledging your property. You can pledge an apartment, a car, any valuables or securities. And now you can pledge your cryptocurrency assets, for example, Bitcoin. In many cases, taking an asset-backed loan has more advantages over simply taking a non-secured loan, because it allows you to pay a lower interest, as the lender’s risks of losing money are reduced. And in the case of cryptocurrencies, it’s even more justified — in fact, by temporarily selling the cryptocurrency, which has been growing non-stop the last year, you can miss the benefits of its growth. If you receive the same amount of money by pledging your Bitcoin, you can use this money, then return all you’ve borrowed, and get all your assets back. Now there are only a few companies that offer crypto-backed loans. But with the growth of popularity of the cryptocurrencies, a completely new class of assets, the popularity of crypto-backed lending will grow. After all, now we are only at the beginning of the wide crypto adoption. And who knows what will happen next?