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 item minus the interest. [1] [2] An example would be a lender selling a pencil for $ 120 to be paid in a year’s time and immediately repurchasing it for $ 100 in cash. The borrower has borrowed $ 100 at 20% interest rate. [3]

Name

The term was shared among Latin and Western European languages, from Arabic mokhatara ( مخاطرة ).

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 contracts violated the biblical prohibitions on usury. [4]

References

  1. Jump up^ https://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. Jump up^ Stephen, Leslie (1898). ” Pascal “. Studies of a Biographer . 2 . London: Duckworth and Co. p. 256.
  3. Jump up^ False Economy: A surprising economic history of the world, Alan Beattie, page 130
  4. Jump up^ False Economy: A surprising economic history of the world, Alan Beattie, page 130