Please explain the prohibition that a Jew should not charge a Jew interest on a loan and the practicality of this prohibition in a modern world.

Please explain the prohibition that a Jew should not charge a Jew interest on a loan and the practicality of this prohibition in a modern world.

 

The prohibition is based upon three Biblical texts – Exodus 22; 24 (and a similar text in Leviticus 23):

 

If you lend money to My people, to the poor who are in your power, do not act toward them as a creditor.  Take no interest from them.

 

The third text is Deuteronomy 23; 20

 

You shall deduct no interest from loans to your countryman … You may deduct interest from loans to foreigners but not from loans to your countrymen.

 

These texts in combination have led to a strong prohibition in Jewish law against charging interest (ribbit) to Jews – and in some sources even to non-Jews.  It is worth noting that the level of interest is not relevant -  2% is prohibited no less than 25%.

 

A clear intent can be discerned for the laws in the Torah that in a simple agrarian economy interest could be a prohibitive barrier, and that the Israelite community should provide funds to each other without the punishing burden of interest.

 

As economic structures have grown more sophisticated – from the 2^nd century onwards, the prohibition on interest was a severe deterrent to natural and necessary economic activity.  The rabbis devised a structure known as “heter iska” which provides for the creation of a largely fictitious “partnership” in which the partner providing funding will benefit to an agreed extent from the profits of the business.

 

Those who are punctilious in the observance of Jewish Law make use of this structure, which is widely practiced in Israel – and commended by the Committee on Jewish Law and Standards of the Conservative movement.

 

Nevertheless, members of the Jewish community participate widely in the economic activities of the world, and I would say that in most activities – investment, savings, home purchases, that the conventional practices of the wider society may be followed without harm.

 

It is worth noting that the traditional Jewish aversion to charging interest to other Jews has led to the widespread establishment of “Free Loan Societies” within the Jewish community.  Many Jewish businesses have been started by immigrants who received such loans from their community – and to this day many families in severe difficulty, many Jewish immigrants to the USA are being assisted by such funds.  It would be praiseworthy and a great Mitzvah to make donations to such organizations – or to establish such a Society within each community and synagogue.   More information can be found on the website of the Hebrew Free Loan Society of New York: www.hfls.org

Let's divide this into 3 parts

"Please explain the prohibition.."

A:  From an Orthodox perspective this is a command from Divine Torah, and we can never be certain of its definitive reason or reasons.

Nevertheless, we have a rich literature that does offer several rationales - EG see Sources Below esp. Hinuch 66-68


Q: "...a Jew should not charge a Jew interest on a loan.."

A: The Torah says we may charge a Gentile interest - apparently because they charge US interest

We must recall that the Torah presumed a Nation-State of Israel that consisted of mostly Jews and the Quasi-Convert known as a "Ger Toshav". Our exilic experience has called for some modfications from that ideal.

My own personal philosophy is based upon a simple economic principle [pun intended] - namely that the entire people of Israel are construed as family and therefore we act in a co-operative manner. That implies helping out our brothers and sisters with interest free loans.

I'm guessing - at least until the advent of the Messiah - that we do not construe Gentiles as part of this family, though of course they may join us of their own free will.

Note: It remains a gray area. Do we charge Gentiles interest as a form of reciprocity, or because they fail to be have close enough "kinship"?

Q: "...and the practicality of this prohibition in a modern world."

A Rabbinic literature seems to construe the "interst-free loan" as support for family needs.  Therefore, when a business loan is needed, a "workaround" or cicumvention has been formulated, that is a "heter iska" or a permit for business

Usually mortgage loans are included as "business loans"

In order to make modern commerce possible, there is a moderate loophole that would afford a Jew to lend and borrow from a fellow Jew.

Another "loophole" would be to emply a Gentile as a middleman. Thus Abraham would lend to John who then in turn would lend to Isaac.  Don't try this by yourself at home - without rabbinical supervision!   :-)

Summary:
There is often a natural tension between Torah ideals and pragmatic reality.  In Traditional Torah Judaism, rabbis usually have tried to steer a middle course in avoiding either extreme.

Shalom
RRW

Sources:
For the Torah Point of View see -

Torah -
Parshat . Mishpatim
Ex. 22:24-26

Parshat. R'eih
Deut. 14:22 - 15:18

See Rashi on Both Sections.

Also
See Sefer HaChinuch
66-68, 475-482


For Practical Laws and Customs -

Kitzur Shulchan Aruch
Chapters 33 & 34,
Also 179-189 esp. 179 & 180

 

Please explain the prohibition that a Jew should not charge a Jew interest on a loan, and explain the practicality of this prohibition in a modern world.

 

 

Exodus 22:24 tells us: "If you lend money to My people, to the poor who is in your power, do not act toward him as a creditor: exact no interest from him."

 

It doesn’t explain why.  If a person can rent a house, why shouldn’t he or she be able to rent “money”? 

 

The Jewish Worker website explains (http://jewishworker.blogspot.com/2008/05/why-does-torah-prohibit-lending-money.html) the difference in a helpful way.  While interest is basically rent for using someone else’s money, "renting" money is different from renting other things in that using money doesn’t diminish its value.  When I use a car, the value of the car will depreciate over time.  But money, at least according to Torah, doesn’t lose its value, and so there is no risk of loss.

 

The famous biblical scholar Nachum Sarna sharpens the point.  In Biblical times, a loan was less a commercial transaction than a matter of tzedakah. Those who needed to borrow money were poor, and therefore charging interest would be viewed as exploiting someone in need of help. That is most probably the reason for the prohibition against charging interest to fellow Jews, which we see again in Lev. 25:35ff and Deut. 23:20.

 

The Torah does permit charging interest to non-Israelites (Deut.23:21), but this practice was never really encouraged.  It was supported primarily during those times in Jewish history when money-lending was one of the few professions available to Jews. 

 

As the economy changed, making money-lending more common, a tool called Heter Iska developed as a way to make it possible to lend money to others with interest.  As Rabbi Yosef Kanefsky explains, (http://www.docstoc.com/docs/42881181/Money-Lending-and-Interest-in-The-Torah-and Jewish Tradition)  the Heter Iska redefines the loan as an investment, and the relationship between the lender and the borrower as a partnership. This reframing made it possible to guarantee some degree of return and to help insure that the lender/investor would not face unreasonable risks.

 

While the Heter Iska is a part of modern business practice in the traditional Jewish community, it isn’t part of Reform Jewish tradition.  Still, the issues that emerge from the Biblical prohibition against charging interests raise provocative questions about how we ought to think about money, specifically the gap between rich and poor, not only in the Jewish community, but in the larger society as well.

 

Rabbi Laura Geller

Temple Emanuel of Beverly Hills

www.tebh.org