Ásgeir Jónsson: Usury in Modern Iceland
A large informal lending system developed in Iceland during the post-war era. This article attempts to chart this system using judgments for usury from 1956. These records display annual lending rates ranging from 30–60% and a fairly extensive customer base among both individuals and businesses. Two hypotheses are made about the motives for the system. First, that legislative interest rate ceilings enacted in 1933 were higher than the risk free market rate in the newly established Icelandic currency area, which effectively prevented homebuyers from obtaining legitimate long-term funding. Second, financial repression enacted after the government takeover of the banking system in early 1930’s effectively left retail business with no other resort than seeking usury lenders. The conclusion is that usury lending system is a sad testament of the welfare costs of misguided credit policies of a newly independent nation.
Keywords: informal lending, financial repression, credit policies, credit ceilings, Icelandic currency area