Origin of Credit System
Origin of Credit System
The roots of lending go back to ancient times. As long as 3 millennia ago, there were crafty people who lent money and other material values at interest to anyone in need.
These services were provided under the governmental control and regulated by relevant laws. In ancient Rome, the issuance of loans became a real business. It was then that debt pits appeared in which insolvent borrowers were put. In the Middle Ages, money-lenders were persecuted by the church and even expelled outside the country.
The first commercial banks issuing loans to the population appeared in Europe in the 16th – 17th centuries, but were not very popular. Public credit institutions issuing loans at a relatively small interest appeared only in the 18th century.
In the 1950s, many countries developed special programs to support private sector. However, in most cases loans were not repaid due to insolvency of customers. As a result, the programs were rolled back as they were unprofitable.
Microlending as an effective aid to individual entrepreneurship and others
In the 1970s, a new form of loans – microlending – emerged. Muhammad Yunus, Professor of Economics, born in Bangladesh, the poorest country in South Asia, is considered to be the founder of the microfinance system. He was a capable student and acquired an excellent education at the University of Dhaka.
In 1976, Yunus issued the first microloan in his native country. He lent small amounts of money to his poor fellow citizens at a tiny interest without any liens or guarantors. Yunus had one main condition: the money had to be spent only on creating or expanding their own business.
At first, not many people believed in Yunus’ venture, but later it turned out that 97% of all loans were repaid to the lender. In 1983, Yunus, bolstered by the success, established the first microfinance organization – Grameen Bank.
Over the years, the bank issued more than 4 million loans for a fantastic amount of $ 5 billion, with a loan repayment of 90%. In 2006, Muhammad Yunus was awarded the Nobel Prize for his successful project aimed at overcoming poverty. Grameen Bank continues to operate today, issuing millions of loans around the world.
Yunus had many followers. One after another, similar organizations began to open up not only in the poor countries of Asia and Latin America, but also in developed countries, including the United States. There appeared institutions that expanded the range of their financial services and began to issue loans not only for business, but also for the purchase of real estate, restoration work and for other purposes.
Aga Khan Microfinance Agency was the most successful: by 2010, it had more than 150 branches around the world, including in South and Central Asia, West and East Africa, and in the Middle East.
Currently, microfinance system is developing rapidly, helping entrepreneurs from all over the world achieve their cherished dream – to set up their own business.
Lending specifics in various countries.
Many European credit organizations conclude that the client is solvent based on the data from business social networks and the estimated value of his / her property. The EU countries offer favourable lending conditions and low interest rates.
Mortgage annual interest rates in European countries (loan term – 20 years) on the average:
- Finland – 1.47;
- Switzerland – 1.54;
- France – 1.78;
- Netherlands – 2.5;
- Norway – 2.66;
- Sweden – 2.9;
- Greece – 4.81;
- Hungary – 5.66;
- Iceland – 6.36;
The mortgage market in European countries offers favourable conditions to foreign clients, since the Government of these countries is extremely interested in investing in this sector of the economy.
In the USA, most citizens prefer to live “on credit”. This country is a high-income nation with a low interest rate with a high level of income. Americans are used to taking loans at every given opportunity without a second thought about the long repayment period.
As of the beginning of 2019, U.S. citizens has taken a record amount of loans worth $ 13.54 trillion, mostly mortgage loans. In 2019, the mortgage interest rate in the United States is significantly higher than in Europe amounting to 5-6%.
Japan offers one of the lowest loan rates. In this country, inflation is very low, and although real estate here is quite expensive, the average mortgage rate of 1.2% allows its citizens to purchase their own house. Life expectancy in this country is high, so a loan can be granted for up to 50 years.
The countries below offer the highest mortgage interest rates:
- Argentina – 26-28%,
- Venezuela – 20-22%,
- Ukraine – 17-22%,
- Belarus – 15-20%.
Interesting facts and specifics in obtaining loans
In some countries, such as Denmark, there is a negative loan rate. It may seem nonsense, but this is the case. As a result, borrowers get compensation from banks for loans issued more than 10 years ago.
In Switzerland, negative loan rates are aimed at adjusting the national currency against the euro.
Similar loans are issued in Japan, stimulating in this way the development of the economy. In addition, Japan has passed an interesting law that requires to provide complete information about the property being sold. If a crime or suicide was committed in a house or apartment, its price drops significantly.
In Sweden, mortgage loans are issued to citizens up to the age of 70, as pursuant to the law the loan of a deceased borrower will be repaid by his / her first-degree relatives.
Israel offers a huge rate on a real property loan, so there is a special list of citizens who are granted interest-free loans.
Generally speaking, each country has its own specifics when issuing loans and credits.