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Bartering
Bartering has been a method of trading between groups of people or even nations
before money became a common form of payment acceptable to both trading parties.
This is still used in many less developed economies, especially in their tribal areas. It is
also used by nations that have economic sanctions against them, e.g. Iran gives oil to
China in exchange for them building a dam or a power station.

Money
Most human new developments can be traced to a source, point in time or an era in one
or two locations in a specific civilisation. However, the ‘creation’ and ‘appearance’ of
money and its use can be traced to many periods and locations during the recent
human history, 3 to 5000 years. It is worth noting that ‘money’ could take any form, e.g.
whale teeth, metallic objects, ivory or live animals.

Early ‘Banking’ and Money Lending

The need for ‘banking’ and money lending is associated with more recent use of money,
e.g. silver, gold or it was created as soon as money appeared in a civilisation. In Roman
times ‘banking’ was carried out by private individuals who would also conduct nearly all
money lending. They had regular borrowers who would be given what could be termed
as ‘harvest day loans’, which would have been similar to today’s ‘payday loans’ for
farmers at much lower interest rates (APRs). Many of these individuals who loaned
money disappeared in the last days of the Empire, but were replaced by the very rich
who capitalised on their dominant position and became extremely rich.

In 325 AD religious leaders decreed any form of ‘lending’ with interest above 1% per
month as usury, although usury was regarded as any lending. This resulted in a misuse
of the word and confusion about what was regarded as usury and what was acceptable
money lending.

Most money lenders by the dark ages (11th and 12th centuries) and middle ages (15th and
16th centuries) were Jewish, as Christians were forbidden from lending money with any
interest. The reason Jewish people had become ‘experts’ at this practice was primarily
due to Christian religious leader’s decree on money lending and the fact that Jews were
permitted to lend money with interest to non-Jews, but not to Jews. Most traders in the
middle ages in Venice would have had access to ‘banking’ and money lending from the
Jewish lenders who were kept in special locations of the city. This practice continued
until it made many such practitioners very rich.
Pawnbrokers
This is one of the oldest ‘money lending’ practices, which started in the ancient Greek
and Roman times. It is a form of ‘secured’ lending with the individual placing one or
more items as collateral for the borrowed money. There’s a ‘charge’, ‘fee’ or ‘interest’
payable for an agreed period (e.g. 30 days) before the item(s) can be retrieved from the
pawnbroker.

These can also be regarded as a type of a secured ‘payday loan’ of the past, which
continue today in most cities of western countries. The interest or fees charged by
pawnbrokers tend to be much lower than unsecured payday ones, as the collateral
significantly reduces the risk to the ‘lender’.

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Did you know, the history of loans can be traced back to 3,000 years ago!? Since the
beginning of civilization itself, lending has been lurking around in some shape or
form.
 
The history of lending has shown us that the huge progress of civilization would not
be where it is today without loans acting as the igniting fuel.

1754 BCE: Mesopotamia – First Interest Rates

 
Sumerian temples actually went on to function not only as places of worship but as
banks – and this is where the very first large-scale systems of loans and credit began. As
the city grew, so did the complexity of the people’s needs and lending agreements and
so the idea of charging interest was developed. Silver at this time began gaining
popularity, but unlike calves and grain, did not naturally gain interest.

This is where the Code of Hammurabi (issued by the 6th Babylonian King) came in,
defining the price of silver and how the interest charged on silver loans was to be
regulated.

321 BCE: India – The First Bill of Exchange

 
One of the earliest ever recorded examples of a bill of exchange was in India. A bill of
exchange involves a written order that is used to bind one individual to another
instructing the payment of a fixed sum of money at a predetermined date.
In the Maurya dynasty, merchants of large towns would give letters of credit to one
another which also helped issue bills of exchange to foreign countries for sea-borne
trade.
 
Fun fact: An instrument called an ‘adesha’ was used. This was an order for a banker
to pay money to a third person.  

~400 BCE: Ancient Greece – The First Payday loans

 
One of the oldest lending methods can be found in Ancient Greece where
pawnbrokers lent money by collecting collateral from a borrower and reducing the
risk of the lender. This is something we still use today with when it comes to secured
business loans. If you’re looking for a loan and not wanting to use collateral, however,
you would need to use an unsecured business loan.

~1400 AD (Middle Ages) – Lending Outlawed

 
In this period of time, the largest form of authority came from religion, be it the
Christian bible throughout Europe or the Qur’an in the Middle East. Both religions
banned the practice of lending (or lending with interest outright) however, the Jews’
Torah permitted lending, though only allowed for interest to be charged with non-
jews.
With Jews being the only people allowed to lend money, they soon gained a rather
nasty reputation which is arguably what lead to their persecution. This continued into
the 18th century and over time, the huge economic benefits of lending were slowly
realized. This led to the dilution of restrictions and the traditional banking functions
that we know and appreciate today.
Mid-18th century: Industrial Revolution – Birth of International
Finance
 
By the 18th century, lenders still used collateral but there was a big shift to indentured
loans. In this practice, the rich lent to the poor and the borrower then had to work off
their debt.  

With international trade booming, the banking world had some catching up to do.
Greater controls were needed and Mayer Amschel Rothschild is largely responsible
for pioneering international finance through the establishment of centralized banks.
He cleverly shipped his sons off across the major European cities of the time
(Frankfurt, Naples, Vienna, France, and London) to set up banks in each city.
 
The 1800’s went onto usher in a new era of lending to make loans more widely
available to the average Joe (thank goodness!). In 1816, the Philadelphia Savings
Fund Society in the US opened its doors as a loan resource and became the very first
savings bank in the US.  

Mid-20th Century Loans: Cards Are the New Silver

 
The mid-20th century saw yet another shift in modern-day lending but this time, to
financial data. In 1950, Frank McNamara made history when he paid a restaurant bill
with a cardboard card, now known as a Diners Club® Card. A few years later the
Bank of America started launching the BankAmericard, the good old fashion Visa.
 
By 1959 FICO scores were wide-spread and used by lenders to evaluate mortgage
loans.
 

1980’s: Online Lending is Born

 
With hundreds of hours of paperwork involved in filing and handling loans combined
with a rising population and need for loans, computers came to the rescue just in time.
With the evolution of the computer and electronic data, the ways of lending too
evolved.

Quicken Loans in Detroit drastically sped up the lending process in 1985 (it’s in the
name) by offering most of their application and review process online. Jump forward
to 1999 and online banking is a thing and borrowers no longer need to step outside
their house or even have any social interactions to apply for a loan (cue the onset of
obesity and social awkwardness).
 

Alternative Online Lending

 
This immense technology jump has eliminated the enormous amount of paperwork
and headache of traditional loans making way for a totally new era of online lending.
 
Prosper is seen as the pioneer of alternative lending, launching in 2006, it allowed
borrowers to skip the bank altogether and get their loans from online lenders. Their
‘peer-to-peer’ lending system allows the average person to both invest and lend. This
not only greatly sped up the process, but opened a huge window of opportunity. Other
companies such as OnDeck and many more caught onto the idea and here we are
today.
 
Today (2018), Become has more than 35 partners (Prospa and OnDeck included) and
uniquely matched up businesses with our lending partners to find them the
best business funding deal possible for their needs.

The Future of Lending

 The future of lending is NOW, thank goodness we live in a time where medieval
practices are out the window. Now everyone and anyone can easily compare loan
options online and see which loan products offer the best deal.
 We hope you enjoyed time-traveling with us, it’s incredible to see how lending has
benefited civilization and the economy! Now technology is swinging lending in a
totally new direction, stay tuned for part two of this blog where we’ll discuss what
the future of lending holds.

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Relevant Laws and IRRs
•  Lending Company Regulation Act (LCRA) of 2007 (RA 9474)
•  Financing Company Act (FCA) (RA 8556), as amended
•  Revised Corporation Code (RCC) or RA 11232
•  Securities Regulation Code (SRC) or Republic Act (RA) 8799, as amended and
its Implementing Rules and Regulations (IRR)