Manu's rate of interest in ancient India was based on the varna system and charged different rates to each class: 2% monthly for Brahmins, 3% for Kshatriyas, 4% for Vaishyas, and 5% for Shudras. While this enabled inclusion, it was also discriminatory. Kautilya's rate of interest in the Arthashastra was based on risk levels rather than social class, ranging from 15% to 240% annually. Both systems made exemptions for certain groups and prohibited interest beyond one year. The study suggests drawing from ancient Indian philosophy to improve modern economic policy and commerce.

1. RATE OF INTEREST IN ANCIENT INDIA:
A WAY TOWARDS FINANCIAL INCLUSION AND SUSTAINABLE
DEVELOPMEN WITH SPECIAL REFERENCE TO MANU SMRITI AND
KAUTILYA’S ARTHASHASTRA
RANJAN B U, Research Scholar , Mandavya Research and Development Centre , Mandya

2. It seems to me that before we can appreciate Swaraj,
we should have not only love but passion for
Swadesi. Every one of our acts should bear the
Swadesi stamp. . . There could be several methods
to improve our economy and commerce of the
country. It requires expert planning, but it should be
rooted in Swadesi thought*
*Said - Dr. M Rama Jois, Former Chief Justice of Punjab & Haryana High Court, Former Governor of
Jharkhand & Bihar, in national conference on 18th November 2004 at Center for Inter-Disciplinary
Studies and Research in Sanskrit, Canara College, Mangalore.

3. INTRODUCTION
In the matter of economic development of our country, it should
be based on our own basic philosophy and structure laid down
by our ancestors from the time immemorial.
By studying our ancient philosophy, astonishingly, I found the
concepts of charging interest in ancient India. Among which
Manu smriti & kautilya’s arthashastra inspired me to develop
this concept.
The Manu’s conception on rate of interest based on Varna
system (division of society based on work) which was
surprisingly resulted in financial inclusion, but kautilya’s
arthashastra concerned more on administrative aspects than that
of personal laws, which give raises to sustainable development
in those days.

4. OBJECTIVE OF THE STUDY
 To reveal the concept of rate of interest in ancient India.
 To divulge Manu’s rate of interest and its connection with
financial inclusion.
 To study Kautily’s rate of interest in his Arthashastra and how
it results in sustainable development.

5. SCOPE OF THE STUDY:
This paper narrowly focuses on versatile aspects of Rate
of Interest in ancient India based on Manu Smriti &
Kautilya’s Arthashastra and its stages, imposition of fines
for disputes in associated with ROI, Invalid surety of
minor and Exception for the payment of interest under
different circumstances

6. METHODOLOGY
 This paper is based on a qualitative research methodology
called Hermeneutics.
 Hermeneutics are related to the name of the Greek god Hermes,
in his role as the interpreter of the messages of the gods.
 Current context, hermeneutics can be described as the
interpretation and understanding of ancient literature and
religious texts.
 Under this methodology, the references or notes were stated in
its original text where ever it requires.

7. LIMITATIONS
 The study is micro in nature extends only to the concept of
ROI in ancient India.
 The study restricted its references only to Manu Smriti &
Kautilya’s Arthashastra.
 The study is at an introductory stage and not addresses the
deepest and most critical aspects in detail.

8. TERMINOLOGY
 RATE OF INTEREST : An interest rate is the rate at which interest is paid by
borrowers (debtors) for the use of money that they borrow
from lenders (creditors).
 FINANCIAL INCLUSION :Financial inclusion or inclusive financing is the
delivery of financial services at affordable costs to sections of disadvantaged
and low-income segments of society.
 SUSTAINABLE DEVELOPMENT :Development that meets the needs of the
present without compromising the ability of future generations to meet their
own needs.
 MANU-SMRITI :Manu-smriti, (Sanskrit: “Laws of Manu”) traditionally, the
authoritative of the books of the Hindu code (Dharma-shastra) in India.
 ARTHASHASTRA :The Arthashastra is an ancient Indian treatise
on statecraft, economic policy and military strategy, written in Sanskrit. It
identifies its author by the names "Kauṭilya“.

9. MANU’S RATE OF INTEREST
 The law of Manu (manu smriti), is the most important and
earliest metrical work which authorizes the practice of charging
interest on borrowing.
 Manu’s Rate of Interest (ROI) is based on varna System, a
quadruple division of society based on an occupation
performed, it is not to be confused with the much coarser Cast
System in India.
 The scheduled ROI is established on the grounds of social
states of a borrower rather than the level of risk involved or the
purpose of the loan.

10. just two in the hundred, three, four, and five (and not more), he may take as
monthly interest according to the order of the varna ( 8.142)
 Brahmana (The Thinker or Scholar) was charged – 2 % p.m – 24% p.a
 Ksatriya (The Leader) was charged – 3% p.m – 36% p.a
 Vaisya (The Profit Minded) was charged – 4% p.m – 48% p.a and
 Shudra (The Worker) was charged – 5% p.m – 60% p.a

11. why it is discriminatory in nature
with high rate of interest and will
it results in financial inclusion?

12. Neither a Brahmana, nor a Kshatriya must lend (money at) interest. . . . .(10.117)
 By this statement, it is clear that, only Vaisya & Shudra were
given authority to lend money at interest and make profit.
 Brahmana ,The thinker, who is expected to devote his lifetime
for learning and teaching; Likewise Ksatriya, The Leader, who
is also expected to devote his lifetime by offering protection to
the society, They never carry out any such business which
results in Profit.
 The scheduled ROI is established on the grounds of social states
of a borrower rather than the level of risk involved or the
purpose of the loan.

13.  We think that the Manu’s ROI is very high, logically, Manu
ordains not take interest beyond the year, nor such as is
unapproved, nor compound interest, periodical interest,
stipulated interest, and corporal interest (8.153)
 one of the interpretation of manu Smriti states that the interest
payable beyond one year is prohibited, even if the money due
is paid by the debtor after 2 or 3 years.
 Interest beyond one year was considered as redundant. If the
debtor is unable to pay a debt (at the fixed time), wishes to
make a new contract, may renew the agreement, after paying
the interest which is due. (8.154)

14.  Manu’s ROI results in financial inclusion by charging a
minimum rate of interest to Brahmana & the Ksatriya class of
people whose socioeconomic status were speculative on those
days. He enacts that the interest should not take beyond the
year.
 In order to justify the Vaisya & Shudra class of people he made
a rule that neither a brahmana, nor a kshatriya must lend
money at interest by which only the vaisya & shudra classes
were authorized to lend money for interest and to make
reasonable profit.
 Manu strongly held the view that, if the debtor is dead and the
money borrowed was expended for the family, it must be paid
by the relatives out of their own estate even if they are divided.
(8.166)

15. KAUTILYA’S RATE OF INTEREST
 Unlike Manu’s Rate of Interest, Kautilya in his
Arthashastra gave significance to the level of risk
involved or the purpose of the loan rather than the
socioeconomic status of the borrower.
 Kautilya does not give importance to varna System and
he hasn't linked the interest rates with Varna.

16. THE ANNUAL INTEREST RATE STRUCTURES FOR
VARIOUS CATEGORIES OF BORROWERS IN
KUTILYA’S ARTHASHASTRA ARE TO BE:
 For non-commercial loans - 15%
 For less risky commercial loans - 60%
 For risky commercial loans - 120% and
 For foreign trade - 240%

17.  It is found that the rate of interest on loans for foreign trade
(240% per annum) was much higher than that of loans for
internal trade.
 The most feasible explanation for the highest rate of interest
for foreign trade is the concern for sustainable development
along with the high risk factor used to play a dominant role in
those days.
 In Kautilya’s Arthashastra there is an additional focus on
maintain and to improve the planetary resources for use by
future generations.
 Kautilya never concerned much with the human laws, like
Manu, but he gave significance on the administrative aspects
of Muryan Kingdom.

18. Minor’s surety is invalid:
Kautilya states that, the minor’s surety is invalid (na
prátibhávyamanyat), minor’s surety is inefficient
(bálaprátibhavyam asáram6= surety of a minor is not
strong), Even today, we can find the same practice in
current banking transactions.

19. EXEMPTION FROM THE PAYMENT OF INTEREST
 Interest on debts due from persons who are engaged in
sacrifices taking a long time (dírghasatra), or who are suffering
from disease, or who are detained in the houses of their
teachers (for learning), or who are either minors or too poor,
shall not accumulate.
 If the creditor’s refusal to receive the payment due to some
reasonable cause, then the amount free of interest for
subsequent time shall be kept in the safe custody of others.
 Cultivators or government servants shall not be caught holding
off for debts, while they are engaged in their duties or at work.

20. FINDINGS
 It is found that, the Manu’s ROI is based on Varna System
having differential and high rate of interest for quadruple
classes of people which results to financial inclusion.
 Kautilya in his Arthashastra, while charging interest rate, gave
significance to the level of risk involved or the purpose of the
loan rather than the socio-economic status of the borrower.
This gave rise to sustainable development of country’s
economy of those days.
 The imposition of fines for disputes in associated with ROI,
Invalid surety of minor and Exception from the payment of
interest under different circumstances were found out.

21. SUGGESTION
 It is suggested to embark on mysterious study and
interpretation of our sacred scriptures, in order to enhance the
ROI and allied concepts.
 It is also suggested to consider our ancient ideology in policy
and decision making process to improve our country’s economy
and commerce rooted with Swadesi thoughts.

22. CONCLUSION
Eventually, I would like to
conclude my paper by citing
Swami Vivekananda:”The more,
therefore, the Hindus study the
past, the more glorious will be
their future, and whoever tries to
bring the past to the door of
everyone, a great benefactor to his
Nation. The degeneration of India
came not because the laws and
customs of the ancients were bad,
but because they were not allowed
to be carried to their legitimate
conclusion (CW. 4.324)”