Short Term Loans: A Brief History

Pawnshops: Ancient Lending Traditions Still Have A Role In A Modern World

By Sharon Secor

Direct Lending Solutions Staff Writer

For as long as there has been the concept of money, there have been systems of personal lending. One of the oldest means of getting a personal loan is through a pawnshop, with the loan being secured by personal items of some degree of value supplied by the borrower to the lender. This type of borrowing predates banks, with some of the oldest names in formal banking history having a long history in the pawnshop business.

Because of the church’s uneasy relationship with the world of money and finance, particularly in the realm of interest, pawnshops and even formal banking bore a certain social and religious stigma. As formal banking became the way of the world, it gained in respectability, but pawnshops, probably due to their association with financial insecurity and the poor, did not.

Pawnshops have survived into modern times, and with the continued legislative harrying of payday loan lenders and today’s challenging economic circumstances, pawnshops have been enjoying a resurgence of sorts, and as they attract more upper class borrowers, a bit of an upgrade in the respectability department, as well. Often, the pawnshop of today is as smooth, well organized, and professional as a modern bank.

Both Eastern and Western financial history reveals longstanding pawnshop lending traditions. This type of personal lending dates back 3,000 years in China’s history, back to the early Romans and Greeks in western history, and reaches far back into Islamic history as well. For those in the East and those in the ancient Islamic nations, this type of lending was such a standard part of day-to-day financial practice that pawnshops were strictly regulated, similar to the way banks are today.

Pawnshop lending was regulated in the West, as well, but the philosophy of the regulation was different, especially during the medieval era, as lending that involved interest was seen as contrary to church teaching and thus, sinful. Those that were not Christians were not bound by the church and were relatively free to engage in the practice, though they suffered from the negative stigma associated with doing such business. Christians borrowed from Jews and Moslems, but condemned them for being lenders. Much of the persecution of Jews through early and medieval history has been related to money lending. After all, when a king borrowed more than he could comfortably repay, it was easier to expel or kill the Jewish people in the name of crimes against Christianity than to raise taxes on an unwilling populace and risk popular revolt and political pain.

One of the slang terms for pawnshop holds within it a piece of Western pawnshop and financial history. Even today, in Europe and Great Britain, one can occasionally hear the word Lombard used to refer to a pawnbroker or a pawnshop. This word has its roots deep into antiquity, going back to the very birth of Europe as we know it, predating the country of Italy that the Lombard family would play an important role in shaping.

The Lombards, an ancient Germanic tribe, first entered the world of formal recorded history between 9 and 16 AD, in the words of Roman court historian Velleius Paterculus. Paterculus made note of their fierceness and determination, qualities that propelled them throughout their centuries-long history. Pressing ever forward, those carrying the Lombard name accumulated lands and power, money and prestige well into the Middle Ages. By the Medieval Era, the Lombards had achieved the wealth and know-how to be among the wealthiest families of early Italy, and thus a natural part of the early banking system, as well as longtime participants in the older lending traditions of the pawnshop. One of the largest financial houses in Great Britain today still carries the Lombard name.

The traditional symbol of the pawnshop is said by many historians to come from the coat of arms of another wealthy and prominent family of medieval Italy, the Medicis. This family also played an important role in shaping not only the cultural and political landscape of Italy and the Renaissance as a whole, but also the banking and accounting systems that we are familiar with today. The double entry debit and credit system of accounting is attributed to the Medicis, developed to keep close track of their financial operations, which in addition to banking and commerce, included pawnshop lending.

All finance related industries existed in the shadow of the taint of being associated with interest and the sin of usury, but as time went on and the church stepped into the modern world of money and finance, formal banks shed that negative association. Pawnshops, however, were never able to do so completely. Even today, pawnshops struggle with image problems, and are often perceived as being associated with criminal activity and the desperate poor.

As other lending options flourished, such as the payday loan, which is not secured by the belongings of the borrower, but rather the borrower’s next paycheck, pawnshops saw a decline in their numbers and their popularity as a short-term cash loan choice. However, as legislative efforts to curb payday loan availability become more successful throughout the nation, pawnshops have seen an upswing. Part of that has been attributed to the more challenging economic situations we face today, including skyrocketing oil and fuel prices.

The pawnshop has been around far longer than the bank, having a personal loan history that extends far back into financial history. As recent news in the world of personal loans demonstrates, the history of the pawnshop as a personal loan option are far from over. Indeed, with the shaky financial condition of many of today’s banks – a result of the mortgage and lending melt-down and the associated credit crisis – it would come as no surprise to find that the history of the pawnshop as an accessible lender lasts longer than that of traditional banks.