Question

In a petition to the Deccan Riots Commission, a ryot explained how the system of loans worked: A sowkar lends his debtor Rs 100 on bond at Rs 3-2 annas per cent per mensem. The latter agrees to pay the amount within eight days from the passing of the bond. Three years after the stipulated time for repaying the amount, the sowkar takes from his debtor another bond for the principal and interest together at the same rate of interest, and allows him 125 days’ time to liquidate the debt. After the lapse of 3 years and 15 days, a third bond is passed by the debtor … (this process is repeated) at the end of 12 years … his interest on Rs 1000 amounts to Rs 2028-10 annas -3 paise.

Calculate the rate of interest that the ryot was paying over the years.

Answer 1

1. The moneylender charged Rs 3 and 2 annas per Rs 100 every month.
2. Since 16 annas = 1 rupee, 2 annas = Rs 0.125.
3. Therefore, the monthly rate of interest was 3.125%.
4. For one year, the rate was approximately:
   3.125 × 12 = 37.5% per year.
5. The passage also shows that on a principal of Rs 1,000, the ryot finally owed more than Rs 2,028 as interest alone after about 12 years.
6. This shows that the ryot was paying a very high rate of interest, and repeated renewal of bonds caused his debt to increase greatly.

Thus, the ryot was initially being charged about 37.5% interest per year, which was extremely high and caused his debt to keep mounting.