For as long as there has been a need for loans, peer-to-peer lending has played a strong role in the formation of many societies and cultures. Most of the ancient world was built on the backs of these loans, as farmers and merchants carved out their own swathe of history. We can look back thousands of years to learn how peer-to-peer lending was formed, and how it has changed.

Many believe that the birthplace of peer-to-peer lending can be traced to the earliest civilizations in Mesopotamia. This was an incredibly rich land, nestled between the Tigris and the Euphrates rivers, and home to many innovations. Our very first records of peer-to-peer lending can be found here, thanks to the meticulous records that were kept by its inhabitants.

In this rich land, there were two primary means of making a living: farming and the merchant trade. Both were highly cyclical in nature, and part of the year was spent without a means to earn any income. Farmers were particularly subject the cyclical effects as they tried to survive in between harvests. Loans became quite common during this time and were usually secured with a portion of the farmer’s future harvest.

As these loans became more popular, abuses began cropping up. It wasn’t too long before Mesopotamian officials instituted what many believe were the first interest rate caps on loans. They decided that no more than 33 ½% interest could be charged for crop loans, and silver loans were capped at 20%.

If you fast forward to 1750 BC and beyond, the Babylonian civilization was at its height, as was peer-to-peer lending. Cities were expanding and there was great need for loans to build, as well as subsisting between harvests. It was during this time that the ruler Hammurabi addressed peer-to-peer lending in his tablets which are now known as “Hammurabi’s Code.” (more info from wikipedia)

“The purpose of the Code of Hammurabi was to use political power to create common bonds among the diverse people of the society. It greatly influenced a total dependence on the power of their one ruler, and it was a conscious effort to exalt the king as the source, the only source, of earthly powers. It unified the empire by offering the standards for moral values, class structure, gender relationships, and religion. It was the most important of all Mesopotamian contributions to civilization.” (source — World History Chronology)

Hammurabi stated that there should be specific limits on the amount of time that would be given to repay a loan and also instituted guidelines to help lenders in the event that a harvest did not come in. During this time, peer-to-peer lending continued to evolve throughout the Middle East and Greece.

From 600 BC to 100 BC, an interesting trend took place in Greece. Interest rates for peer-to-peer loans were generally in the 18% range, and continued dropping until they settled in at between 6 and 12%. This is one of the first recorded drops in interest rates during this time period.

This drop was attributed to a greater availability of better collateral and the fact that the markets were much more stable. Peer-to-peer lending would continue to evolve throughout this time to the present, with each society and culture instituting their own rules and regulations governing loans. Without peer-to-peer lending, our past and as such our future, may have looked quite different.