A 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 object back immediately for cash at the price 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 effectively borrowed $100 at a 20% interest rate. [3]
The term was shared among Latin and Western European languages, from Arabic mokhatara (مخاطرة).
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 such contracts violated the biblical prohibitions on usury. [4] Pope Innocent XI condemns mohatra with the language, "The contract of Mohatra is lawful, though made with the same person, and with a reselling of the same thing, before agreed on, with a design of gain." [5]