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History of Peer to Peer Lending

As ancient records show, the practice of lending money between individuals dates back to the earliest civilizations. For as long as there have been merchants, consumers, and businesspeople, there has been a need for some form of lending. Before the existence of dedicated banks, there were few options when someone needed extra money. Peer to peer lending's roots date back to at least 1900 BC and in some cases, far before that.

The first mention of this type of lending can be traced back to around 1750 BC, thanks to preserved tablets written by an individual named Hammurabi. Hammurabi was a ruler in Babylon and was the author of "Hammurabi's Code," a series of tablets that detailed his opinion on numerous subjects. He discussed peer to peer lending at length and even instituted some special rules.

His main contribution was the standardization of how loans should be repaid, and what kind of recourse lenders would have when something got in the way of loan repayment. His writings were influential in the development of standard peer to peer lending and were the inspiration for many of today's regulations.

To learn more about peer to peer lending, you can look back even further in history. Mesopotamian records show that in 1900 BC the very first interest rate caps were introduced for loans between individuals. The laws stated that a lender could charge no more than 33 1/2 % interest on loans made for crops, and 20% for loans made for silver.

Peer to peer lending in ancient times was usually centered around the agricultural and merchant industries. Farmers in this time had difficulty making ends meet in between harvests. This meant that they would have to get a loan to tide them over until they were able to harvest their crops. In most cases, part of the harvest would be used to secure the loan.

Collateral during this time usually took the form of material goods, such as crops or personal belongings, but in some cases, relatives and wives were used to secure a debt. This practice continued in many cultures, and was present even as little as 80 years ago. While forms of collateral have changed significantly, the basic concepts of peer to peer lending remain the same as they were in Hammurabi's time.

Today, as we make our way through the 21st Century, peer to peer lending is in a unique position. Never before have individual lenders had the opportunity to reach out on an international scale and directly offer those in need a loan. The Internet has revolutionized peer to peer lending and, combining forces with social networking sites such as Facebook, serves to create powerful lending networks.

Peer to peer lending is here to stay and every day thousands of these loans are made in countries all over the world. Most follow the same rules as set down by our ancestors, and provide us with a lesson learned from our past.