The first pledge loan entities were the Montes de Piedad, which appeared in Northern Italy towards the second half of the XV century.
Those who needed a loan had previously been obliged to approach Jewish bankers, who at the time had a monopoly on the credit markets since both Christians and Muslims were prohibited from granting loans with interest.
Initially, the Jewish moneylenders were the only people who granted small loans to the consumer, but gradually they ended up financing cities, princes, popes and other public authorities who approached them because they were the only people with sufficient amounts of cash to be able to lend large sums of money.
On the other hand, it was common for peasants, artisans and small traders who turned to loans in order to meet unexpected needs or counteract the scarcity of agricultural products, to be obliged to pay very high interests, with rates of between 30 and 200%, according to historians.
The first people to dedicate themselves with real zeal and energy to combat the usury of the Jews of the time were the Franciscan Friars, whose mission was to leave the retreat of the convent in order to help solve the economic and even subsistence problems of the Christians and to offer practical help to other needy people.
The Franciscans and the “Montes Pietatis”
To this end, the Franciscans promoted the “Montes Pietatis”, institutions which loaned money in cash with the guarantee of a pledge, without interest, and with exclusively charitable and solidarity ends. The funds came from the alms of the faithful and they organised collections destined to “pile up” money or create a fund, or “Monte” (literally mountain, (of money)), and be able to lend small sums to the needy, requesting the repayment of expenses only from those who could afford to pay. By virtue of its charitable and religious end, the origin of the money (the alms and collections) and in order to distinguish them from other preceding lay initiatives, the said Montes were named “de Piedad” (of mercy).
Among the most prominent promoters of the first Montes are the Franciscans Bernardino de Siena, Michele Carcano, Fortunato Coppoli, Bernardino de Busti and Bernardino de Feltre.
The guidelines of the Franciscan order for the operation of the Montes later changed so that they began to charge low interest rates for their loans, a change that was implemented uniformly in all of them.
Loans with interest
The heated theological, moral and legal debate with the Dominican Friars on the charging of interests, was definitively settled with the decisions of the V Lateran Council, begun in 1512 by Julius II and concluded in 1517 by Leo X. With the Inter Multiplices Bull of 1515, the latter, having confirmed the church’s condemnation of usury, approved the legitimacy of loans with interest, supporting the practice which was already widespread in the Montes of asking a moderate or small interest to cover expenses.
Practice had shown that the Montes that had decided to rigidly follow the rule of free loans, relying exclusively on the generosity of benefactors or powerful people for the initial capital, soon had to close their doors or change their system and adopt the formula of charging minimal interests to enable their institutional survival.
The Italian “Montes Pietatis” grew quickly throughout Europe, becoming particularly well rooted in catholic and Mediterranean countries (France, Spain, Portugal, Prussia, The Netherlands, etc.), and growing from there, as a result of colonisation and evangelisation, to all of Central and Southern America, Northern Africa, the Philippines, Japan, etc.
At the same time as this Catholic religious current, similar charitable currents arose in Anglo-Saxon, protestant countries such as “Frugality Bank”, Bancos de Caridad” and similar institutions that also aimed to help the most needy by substituting the alms for religious ends, charity and Christian piety with the lay virtues of gifts, philanthropy and precaution.
At present, Pignorative or pledge credit is a universally extended financial product that has been implemented in many countries, from those considered the richest (such as Switzerland or Germany, which are very strong) to less fortunate ones (such as Bangladesh, Algeria, etc.).