Banking and History of Moneylending Research Paper

Usury

The definition of usury has evolved over time. The basic premise is that a lender charges a rate of interest that is too high. Today, the standard for usury is defined in law, but initially the practice had no formal definition. Usury was traditionally banned in Christian society, has been criticized in Indian texts, and remains banned in Islamic society. Islamic banking, for example, requires that the lender either earn money from fees, or more commonly the lender exchanges the financing for an equity share, so profit-sharing, as a means of earning money without charging interest (IIBI, 2015)

During the time of King Henry VIII, usury was defined as charging interest. The idea of paying interest was new at the time, as a means of compensating the lender for the risk associated with lending. Interest, however, was not a common concept at least in England before this time. As a result, usury was initially defined by the charging of interest (Investopedia, 2015).

Over time, interest was allowed, and the definition of usury shifted. Charging excess interest became the definition, and eventually laws were put into place that put hard numbers in place to define what was considered to be extra interest (Investopedia, 2015). Prior to this point, however, usury was prohibited by the Church. During this time, especially in the Middle Ages, when usury was defined as interest taking, it became part of the culture clash between Christians and Jews. In England -- as is most of Europe -- Jews were forbidden from most trade guilds and in many cases also from owning land, while Christians were forbidden from moneylending, which was seen as a dirty trade. While Jewish scripture forbade charging interest to Jews, it allowed charging interest to non-Jews. Usury became a common charge during times when anti-Semitic sentiment was high, not only because it was illegal for Christians, but as a cudgel by which Christians could scapegoat Jewish moneylenders for whatever ills befell them. In particular, hostility came from those Christians who were involved in financial businesses such as insurance, who saw the Jews as "expendable competition" and often ordered their forcible expulsion, using usury as the charge on which to justify this removal of competition (Perry & Schweitzer,2002 p.125).

The emergence of banking concerns and corporations further spurred the need for interest-based lending. Banking developed in northern Italy. The first banks were set up by…