Again the free circulation of metal currency and its adoption as a
medium for all transactions has hitherto been to the disadvantage
of the debtors. Interest on money was probably little in vogue among
pastoral peoples, and was looked upon with disfavour, being prohibited
by both the Mosaic and Muhammadan codes. The reason was perhaps that
in a pastoral community there existed no means of making a profit
on a loan by which interest could be paid, and hence the result of
usury was that the debtor ultimately became enslaved to his creditor;
and the enslavement of freemen on any considerable scale was against
the public interest. With the introduction of agriculture a system of
loans on interest became a necessary and useful part of the public
economy, as a cultivator could borrow grain to sow land and support
himself and his family until the crop ripened, out of which the
loan, principal and interest, could be repaid. If, as seems likely,
this was the first occasion for the introduction of the system
of loan-giving on a large scale, it would follow that the rate of
interest would be based largely on the return yielded by the earth
to the seed. Support is afforded to this conjecture by the fact that
in the case of grain loans in the Central Provinces the interest on
loans of grain of the crops which yield a comparatively small return,
such as wheat, is twenty-five to fifty per cent, while in the case
of those which yield a large return, such as juari and kodon, it is
one hundred per cent. These high rates of interest were not of much
importance so long as the transaction was in grain. The grain was
much less valuable at harvest than at seed time, and in addition the
lender had the expense of storing and protecting his stock of grain
through the year. It is probable that a rate of twenty-five per cent
on grain loans does not yield more than a reasonable profit to the
lender. But when in recent times cash came to be substituted for
grain it would appear that there was no proportionate reduction in
the interest. The borrower would lose by having to sell his grain for
the payment of his debt at the most unfavourable rate after harvest,
and since the transaction was by a regular deed the lender no longer
took any share of the risk of a bad harvest, as it is probable that he
was formerly accustomed to do. The rates of interest for cash loans
afforded a disproportionate profit to the lender, who was put to no
substantial expense in keeping money as he had formerly been in the
case of grain. It is thus probable that rates for cash loans were for
a considerable period unduly severe in proportion to the risk, and
involved unmerited loss to the borrower. This is now being remedied
by competition, by Government loans given on a large scale in time
of scarcity, and by the introduction of co-operative credit. But it
has probably contributed to expedite the transfer of land from the
cultivating to the moneylending classes.