04 May How to Charge Interest for Loan?
Vishnu Smriti, a book on Dharmaśāstra, deals with lending, borrowing, interests and personal loans. Those who are in the profession of Brahmins and Kshatriyas were forbidden in trade according to dharma sastras.
It is Vaishya vritti. Dharma Sastra clearly instructs him to take a very nominal interest only during Apat-kAla (reduced circumstances) The percentage of interest should also be according to then prevailing rates across the world.
If possible, it was advised to do samudrayAna (cross the oceans)and find out the prevailing interest rates in the foreign countries and then decide the interest rate – otherwise there would be economic imbalances it says.
“Kutumbaarthamasakthena gruheetham vyaadhithena vaa upaplava nimittham cha vidyaathaapalkrutham thath kanyaavaivahikam chaiva prethakaaryeshu yathkrutham ethath sarvam pradaathavyam kutumbena krutham prabho”
Meaning: Loans are taken for meeting the expenditure connected with economic problems due to family burden, health problems, treatment, education, expenditure during accident, marriage of daughter, for performing rituals connected with the demise of the family members, etc.
“Atha utthamarna: adhamarnaadyathaa datthamartham gruhneeyaath dvikam thrikam chathushkam panchakam cha satham prathimaasam”
Meaning: The loans can be given and taken between borrower and lender. Generally charged interest rates are 2, 3, 4, or 5% per month.
“Sa paadapanaa dharmyaa maasavruddhi: panassathasya panchapanaa vyaavaharikee”
Meaning: Reasonable (dharmic) rate of interest is 1.25% per month (i.e 15% per annum) on the transactions with common man for non commercial purposes. But for commercial purposes (for making profit out of it) interest rate can be 5% per month.