Capital formation and lending: The role of the Church in Guadalajara, 1750-1800
Description
This study analyzes, from a mortgage banking perspective, capital formation and lending in Guadalajara, Mexico during a period of economic growth. The analysis focuses particularly upon the Church as a financial institution The following questions are answered as the basis for conclusions about the influences which most affected the formation and conservation of capital and about the influence of lending policies upon colonial economic development and social structure: (1) What was the legal framework under which lenders operated? (2) What were the important sources of capital? (3) How did the Church generate capital? (4) What were the loan underwriting and servicing policies of the Church and other lenders? The most important sources of capital within the Church were nun convents and funds which the diocese owned or controlled. As enforceable contracts, chantries and dowries were financial instruments as well as religious institutions. They funneled wealth into the Church, supplementing unrestricted donations and other revenues. However, sometime during the period 1750-1800 the volume of loans by individuals overtook the total for Church lenders Because no more than 5 percent interest could be legally charged, the diocesan Cabildo and other Church underwriters concerned themselves primarily with security of principal. Loans were usually collateralized and well-margined. Productive farms were the preferred collateral Individual lenders made mostly short-term loans, while most Church loans were for intermediate terms and usually could be extended. As a result of slow turnover, Church capital was periodically scarce Because the Church preferred haciendas as collateral, the agricultural sector of the colonial economy benefitted most from the favorable 5 percent interest rate. Merchants became members of the landowning elite, often after acquiring land through marriage alliances in which their part of the arrangement was to furnish liquid capital for the expansion of production. This was in effect equity financing which circumvented the 5 percent interest limitation. The manipulation of colonial capital resources contributed to the maintenance of an agrarian, relatively immobile society. However, colonial society was not characterized by lavish living, perhaps partly because its members often carried heavy burdens of debt