Mohatra contract

A Mohatra contract is way of loaning money with interest without breaking the letter of the usury laws. The lender sells the borrower a trivial object to be paid for on the loan due date. The borrower then sells the same object back immediately for cash at the price minus the interest. [1][2]

Example

I sell my book to you for 120 dirhams with the money to be paid in a year's time. I buy it back for one hundred immediately. I keep my book: you have in effect borrowed a hundred dirhams from me for a year at 20 per cent interest.[3]

History

Mohatra contract was so common that it became a standard commercial term used for centuries. Issuing a decree in 1679, the Holy Office of the Vatican condemned the idea that 'contractus "mohatra" licitus est', stating that such contracts violated the biblical prohibitions on usury.[4]

References

  1. ↑ http://books.google.com/books?id=D1uh8IRcNs0C&pg=PA48&lpg=PA48&dq=Mohatra+Contracts&source=bl&ots=MFOAXuD_5i&sig=xJb181lDMLpktc97YeImPqwRFqM&hl=en&sa=X&oi=book_result&resnum=1&ct=result
  2. ↑ Stephen, Leslie (1898). "Pascal". Studies of a Biographer 2. London: Duckworth and Co. p. 256.
  3. ↑ False Economy: A surprising economic history of the world, Alan Beattie, page 130
  4. ↑ False Economy: A surprising economic history of the world, Alan Beattie, page 130