If you needed to borrow money in 6th century China, and neither family nor associates in business could be relied on, you had few places to turn to. There were no banks. Even private moneylenders, at least with operations that extended far beyond the skill and time of a single person, were few. The largest institutions involved in lending money were Buddhist monasteries. How did monasteries get involved in lending? It was the outgrowth of their large endowments and the unproductive nature of their spiritual work, which naturally required a recurring income, passively earned, in order to sustain their operations.

Early Lending in China

            Buddhism arrived in China in the 1st century C.E. and was responsible for a surprising amount of financial development, especially in lending. Still, lending at interest had already existed before; prevailing interest rates were generally between 20% and 33.33% per annum during the Han dynasty. However, the activities of Buddhist monasteries, lending out their endowments, increased lending activity; in some areas of lending, monasteries were the only active creditors.

           Though, besides the monasteries, mutual microfinance associations were formed in China starting from about the 4th century. In these associations, groups of people would take turns lending to and borrowing from each other. Who would be able to take out a loan from the association in a given period would be determined either by throwing dice, by simple rotation, or by auctioning off a loan to who among the members would pay the highest interest rate to the rest of the group.

Buddhist Monasteries

           Buddhism infused its followers with the goal of securing a more favorable rebirth, the next one in a cycle of deaths and rebirths, or for the strongest believers, to end the cycle altogether. This was determined by good deeds, or merit, and by the intentions behind these deeds, called karma. Thus, Buddhist monasteries were supported by the charitable giving of worshipers looking to accumulate merit that might later repay them with a better rebirth. Gifts were made in lands, commodities, and money. Funds raised by monks would also be contributed into the endowments of monasteries. In time, the holdings of monasteries, in lands and serfs, along with other assets, could be massive.

           Making the most of this endowment mattered to the entire community. In a 2nd century record, donors were reportedly upset that their gift to a monastery, intended to support the housing expenses of monks and nuns, sat idle in a storeroom until spent, thereby producing no merit in the meantime. They suggested that the monastery lend the money, thereby allowing the gift to accumulate even more merit while awaiting use. They generally lent this money by playing the role of pawnbroker. Later, Buddhist monasteries also formed their own microfinance associations of the sort described earlier, which would have included monks and nuns, and would have helped spread Buddhism in China.

           Funds were raised by religious contributions for specific purposes and, at least for recurring needs, funding these from interest earned by the endowment, or ‘inexhaustible treasuries’ (無盡藏) as they were known, worked well. The text below, from the Song dynasty, regards an endowment set up to fund the purchase of lamps and oils.

Even though the halls of that establishment had hall masters (殿主) to look after everything, there was still a lack of lamps lit permanently (長明燈). Thus, a subscription was organized among the community that raised thirty-three strings of cash. These were paid into the Long Life Treasury. An Office of Lamps and Oil (燈油司) was instituted with the task of supervising the conservation of this capital from year to year. This office purchased oil with the interest earned from successive placements. The hall masters were even able to install permanent lamps made of enamel (琉璃明燈) in their halls in addition to the ordinary lamps. It was determined that the treasurer (庫子) would present his accounts every month to the abbot (方丈) and managers (知事) for their inspection and signatures.”

Source: T’ai-chou chin-shih lu (台州金石錄. Comp, by Huang Jui 黃 瑞 (Ch’ing). Peking: Wen-wu, 1982.) 7.ya.-b, stele entitled “Sung Pao-tsang yen ch’ang-ming pei”; Shih-k’o shih-liao hsin-pien (石 刻 史 料 新 編; Taipei: Hsin Wen Feng ed., 1978), 11064 infra.

Loans

            Buddhist monasteries in China made loans from the time Buddhism arrived to the 19th century. By lending out at interest, a gift could accumulate more merit to the giver since the total value derived from the gift would be greater, especially if the monastery could be supported just by the interest, leaving the principal intact forever. Still, not all monastery lending was done at interest. A charitable foundation begun by the 6th century Buddhist reformer Xinxing (信行) not only distributed gifts of money as social welfare but also made interest-free loans.

            Still, notwithstanding the exceptions, a standard developed for these monastic loans. Contracts were to be written in the presence of witnesses, unless the borrower was particularly trustworthy, in which case a written record was commonly foregone. A written contract seemed more crucial where the lender and borrower were strangers, such as if the borrower came from a community farther away from the monastery. In either case, the monastery would keep a record of the loan in its accounts and the borrower’s residence or family would be noted. These loans would usually be granted by clergy higher ranking than monks. Their records, from regions with Buddhist monasteries like Dunhuang and Khotan along the Silk Road, survive in great numbers.

Crescent Lake in Gobi Desert near Dunhuang, Gansu Province, China (Source: Wikimedia, Sigismund von Dobschütz, 2009)

            There was also supposed to be collateral provided for twice the value of the loan, though this was not always strictly necessary either because monasteries could take assets from debtors even if it did not hold physical possession. Still, where applicable, collateral would be pawned and be in the possession of the monastery, often in an associated warehouse or granary, for the duration of the loan. Common collateral could be precious metals, farm produce or other articles.

            If a borrower failed to repay a loan, a monastery would have the right to demand twice the value of the loan as a fine or seize movable property of the borrower. However, a common practice was to merely extend the loan rather than litigate or seize collateral. In any case, failing to pay a debt could cost the delinquent borrower a favorable rebirth, a sufficient enough deterrent.

            Borrowers could come from all walks of life though the form of loan would differ accordingly. Loans were made in cash to wealthy individuals and those to the middle classes, if they might not be made in cash would be made in cloth, a common substitute for cash. Speaking to the widespread use of monastic pawnbrokers, even the prime minister Chu Yuan (褚淵), who died in 482, had pawned a white fur cushion given to him by the Emperor, a cap pin made of rhinoceros horn, and a yellow cow.

            Poor farmers borrowed from monasteries in seeds and repaid these agrarian loans in seeds or grain after the harvest. These loans could be very small and interest rates high. Annual interest rates on these loans could be as much as 50%. They were intended to hold a peasant over between planting and harvest so the loan would usually be repaid in seven or eight months. As might be implied by the nature of these loans, monetary circulation was not high enough to make loans-in-kind, often in wheat, millet, hemp or soya, obsolete in favor of loans in coined money.

            As for the usual interest rates over time, data from between the 3rd and 6th centuries is scarce. Generally, the succeeding period from between the 7th and 13th centuries saw the prevailing interest rates for private loans of all sorts fall, but they remained higher than the 33.33%-or-lower rates of the Han dynasty, a millennium earlier. Still, even at these rates, credit was in demand and supported the local economy.

Later Pawnbrokers

            Buddhist monasteries made loans before the introduction of modern banks in China in the 19th century; long before that moment, they were among the most important financial institutions in Asia. By around the start of the 9th century, there were private pawnbrokers active in China as well. However, they did not always compete with the monasteries. During the Southern Song dynasty, some private entrepreneurs founded pawnshops in concert with monasteries to benefit from the latter’s tax exemption. These private pawnbrokers overtook the monasteries in importance as providers of credit by the start of the 16th century.

            Pawnbroking was a very profitable business in China. The government subjected the business to licensing requirements and demanded payment of fees for these licenses in the 18th century. Pawnbrokers had benefited from government interventions also. In an earlier period, they were even given surplus public funds to lend out. In any case, after 1850 or so, pawnbrokers were themselves replaced by ordinary banks as the most important form of financial organization in the country.

Lesson

            Monasteries, churches, and temples were the first institutional lenders not only in China but elsewhere. Building an institutional lending company requires raising large amounts of capital. More recently, banks, insurance companies, and pension funds have been the principal firms employed in the business of investing money in loans. Endowments and foundations remain important as well, but centuries ago these were the primary providers of credit, at least as far as institutions are concerned. In primitive societies, accumulating large treasuries with which to lend money from was difficult since the proportion of production needed to meet the immediate needs of merely sustaining the population was so large. Thus, religious institutions, particularly those offering some kind of spiritual reward for receiving donations, were the few organizations poised to accumulate and deploy rare surpluses.

More from the Tontine Coffee-House

           Read about the role of ancient Greek temples and medieval Christian churches and monasteries in extending credit. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts. 

Further Reading

1.      Gernet, Jacques. Buddhism in Chinese Society: An Economic History from the Fifth to the Tenth Centuries. Translated by Franciscus Verellen, Columbia University Press, 1995.

2.      Homer, Sidney, and Richard Eugene Sylla. A History of Interest Rates. Wiley, 2005.

3.      Mitchell, Matthew. “Borrowing from the Buddha: Buddhist Temples as Financial Centers in Premodern East Asia.” Entrepreneurship in Asia, autumn 2019, pp. 51–54.

4.      Yang, Lien-sheng. “Buddhist monasteries and four money-raising institutions in Chinese history.” Harvard Journal of Asiatic Studies, vol. 13, no. 1/2, June 1950, pp. 174–191.

Comments (1)

Leave a comment

Your email address will not be published. Required fields are marked *

Social Share Buttons and Icons powered by Ultimatelysocial
LinkedIn