The Prohibition of Ribbit by Rabbinic Decree (2)
Based on a shiur given by HaRav Aharon Lichtenstein*
In the previous shiur, we dealt with the difference between fixed and unfixed interest. We also discussed the question whether illegal ribbit is regarded as theft, or by right the lender acquires the interest. In any event, in the case of ribbit, there certainly exists a prohibition in addition to that of theft, for the borrower, the witnesses and the guarantor all transgress the prohibition.
The Gemara in Sanhedrin 25a includes one who borrows at interest among those who are disqualified from giving testimony. The Rishonim (ad loc.) discuss the question whether or not this passage refers even to unfixed interest. Some Rishonim argue that regarding such ribbit, only the lender is disqualified from giving testimony, but not the borrower, because in the case of rabbinic ribbit, the problem lies exclusively in the fact that it is similar to theft, and that problem applies only to the lender, but not to the borrower. According to this, ribbit by Torah law and rabbinic ribbit are different in their very essence.
PREPAID INTEREST AND POSTPAID INTEREST
The Mishna in Bava Metzia 75b distinguishes between two types of forbidden interest:
Rabban Gamliel says: There is prepaid interest, and there is postpaid interest. How so? If he set his eyes to borrow from him, and he sends him [a gift], and says: "In order that you lend me," this is prepaid interest. If he borrowed from him and returned him his money, and he sends him [a gift], and says: "On account of your money, which was idle with me," this is postpaid interest.
Even though the Mishna's formulation suggests that the problem exists only when the borrower explicitly states that this is his intention, the Rambam (Hilkhot Malve Ve-love 5:11) implies that there is no need for the borrower to specify that his gift is connected to the loan, and his very giving of the gift constitutes forbidden ribbit:
It is forbidden to pay prepaid interest or postpaid interest. How so? If he set his eyes to borrow from him, and he sends him a gift so that he will extend him the loan, this is prepaid interest. If he borrowed from him and returned him his money, and he sends him a gift on account of the money that was idle with him, this is postpaid interest. If he went ahead and did this, it is considered quasi-interest (avak ribbit).
The Rambam writes that this is quasi-interest, and not fixed interest, or in other words, rabbinic interest rather than interest by Torah law.
In our previous shiur we discussed whether rabbinic ribbit is forbidden as a decree lest one come to Torah ribbit or whether it is regarded as an expansion of the Torah prohibition that stands on its own. The Rambam (ibid. 6:1) implies that there is no distinction between various types of rabbinic ribbit, all being at the same level. The Rambam adds:
…Whatever is forbidden as interest other than these is forbidden by rabbinic decree, lest one come to Torah ribbit. This is what is called quasi-interest.
Were we to understand that rabbinic ribbit constitutes a separate prohibition, it seems that there would be room to distinguish between the different cases according to their severity. Logically, there would be room to distinguish between prepaid interest and postpaid interest. Postpaid interest involves the giving of a gift unconnected to the loan, and that might be forbidden only because of a decree. Prepaid interest, on the other hand, is an integral part of the loan, sort of a condition for its execution, and that might be forbidden by a separate prohibition, and not only because of a decree lest one come to Torah ribbit.
WHEN IS THE PROHIBITION VIOLATED
Several Acharonim discuss a question arising in connection with prepaid interest, whether the prohibition is violated at the time of the gift, or only later at the time of the loan. There is a practical ramification in the case where in the end the loan was not extended. Logically speaking, it seems that if we are dealing with a decree lest one come to Torah ribbit – the problem exists even in such a case. But if we are dealing with an expansion of the prohibition of ribbit, there should be no problem here, for in actual fact the borrower never received any interest.
EVASION OF THE PROHIBITION OF RIBBIT (HA-ARAMAT RIBBIT)
The Gemara in Bava Metzia 62b speaks of a lower level of ribbit – evasion of ribbit:
There are things that are permitted, but are forbidden because [they are] an evasion of ribbit…
The Gemara offers the following case as an example of evasion of ribbit: A person lends his fellow wheat that is worth a mane (a hundred zuzim), the borrower agreeing to pay back that sum at a specified time. The lender then goes and buys the wheat back from the borrower for twenty-four selaim (ninety-six zuzim), thus earning a profit of four zuzim. Each stage of the transaction in and of itself is absolutely legal, but the bottom line is that lender profits from the loan.
Since we are dealing with evasion, we must examine the matter in relation to evasions in other realms of Halakha. The Gemara in Shabbat 139b understands that evasion is permitted in rabbinic prohibitions, but not in Torah prohibitions, and this only in the case of Torah scholars, but not for the ordinary person.
We have seen, then, that in contrast to other areas of law, evasion with respect to ribbit is explicitly forbidden and without distinctions.
ALLOWANCES OF THE PROHIBITION OF RIBBIT
As we have seen, the Gemara was inclined to expand the Torah prohibition of ribbit in various ways; in later generations, however, the tendency was in the opposite direction. It is plainly evident that the Sages tried to find ways to circumvent the prohibition of ribbit. These attempts began already in the period of the Rishonim.
LENDING AT INTEREST TO A NON-JEW
The Rambam (Hilkhot Malve Ve-love 5:1) learns from the Sifrei that there is a mitzva to lend money to a non-Jew at interest:
A heathen and a resident alien – we borrow from them and lend to them at interest. As it is stated: "You shall not lend at interest to your brother" (Devarim 23:20) – to your brother it is forbidden, but to the rest of the world it is permitted. And there is a positive commandment to lend at interest to a heathen. As it is stated: "To a stranger you may lend at interest" (ibid.). By tradition, [the Sages] learned that this is a positive commandment and this is Torah law.
Many Rishonim disagreed with the Rambam, arguing that there is a special adornment of the mitzva if one refrains from acting in this manner. This is also the implication of the Gemara in Bava Metzia 70b, and the Gemara in Makkot 24a, which explains that the verse, "He does not put out his money on interest" (Tehilim 15:5), means that that righteous man does not lend his money at interest even to a non-Jew. The Tosafot (ad loc., s.v. tashikh) permit the lending of money at interest to a non-Jew, explaining their position as follows:
…Even according to the first version, it should be permissible, because we pay taxes to the king and the officers, and everything is for our livelihood. And furthermore, we are living among the nations, and there is no other way to earn a living without doing business with them. Therefore, there is no room to forbid ribbit lest one come to learn from their ways, any more than other business dealings.
SERVING THE INTEREST FROM THE LOAN
Later, an attempt was made to find an allowance for lending at interest, by severing the interest from the loan, and turning it into a one-time obligation (not a monthly rate, or the like, but a one-time payment). This possibility was discussed by the Rashba, the Rivash and others, but we will not deal with it here. For a comprehensive discussion, see the book Berit Yehuda.
THE HETER ISKA
THE ESSENCES OF THE TRANSACTION
The most prevalent allowance in our time is that of heter iska. The idea of iska is mentioned already by the Gemara in Bava Metzia (68a-70a), which is very stringent on the matter. A precise definition of iska is found on p. 104b:
The Neharde'ans say: Regarding an iska, half is a loan, and half is a deposit.
In other words, an iska is a variation on a partnership between two people. The Rambam in Hilkhot Sheluchin ve-Shutafin 6:1 explains that there may exist a state of partnership even if all the money belongs to one of the two parties, as long as they both do business with the money and they split the profits and losses between them. In contrast, if the money belongs to the two of them, but only one engages in the business dealings, this is not a partnership, but an iska.
The Gemara explains there that if a person provides his fellow with money to invest, then unless it is specified otherwise, half the capital is viewed as a loan and half the capital is viewed as a deposit. In practice, it is not really a deposit, for the active partner [= the borrower] does not have to return the actual money that had been entrusted to him, but it is also not really a loan, for he does not invest the money for his own benefit. This means that regarding the half that is regarded as a loan, it is the investing partner [= the lender] who will reap the profits or suffer the losses. It turns out then that half the profits and half the losses are accrued to the investing partner and the other half to the active partner. The Gemara explains that this situation is good for both parties:
The Rabbis did something that is beneficial to the borrower and beneficial to the lender.
In the continuation, the Gemara explains that even with the half that is regarded as a loan, the borrower cannot do as he pleases, for the transaction is an iska, and not a loan. This may be understood in one of two possible ways:
1) It is a regular loan that is extended on condition that the borrower not waste the money.
2) It is a loan having an entirely different nature: all the money belongs to the lender – half is actually his and half is given over to the borrower for his use.
The Rambam (Hilkhot Sheluchin Ve-shutafin 6:2) explains that whenever there is only one active partner, the profits cannot be split equally. For in that case the active partner would not receive anything for his work, and regarding the half that is a deposit, the investor would receive his money and also the active partner's work, which would be regarded as quasi-interest. The Rambam offers two solutions to this problem:
1) The active partner must be paid a wage for his work.
2) The profits must not be divided up equally. The active partner should receive a larger share of the profits or suffer a smaller share of the losses.
The Rambam's words are based on the Gemara in chapter Eizehu Neshekh in the aforementioned passages. However, the Gemara discusses the rules of iska in order to make it easier for the borrower, whereas we use the heter iska in order to find solutions for the lender.
PRACTICAL APPLICATION OF THE HETER ISKA
The heter iska in use today is based on our viewing every loan as an iska between two parties who divide the profits between them. In this manner, the lender is entitled to benefit from the profits. The question is how can we rely on this allowance when the borrower takes the money for his personal needs and not to invest in a business? There are those who say that the heter does not apply in a case where there is no chance that the borrower will invest the capital. Others allow such loans, because surely the borrower invests other monies, and it makes no difference whether it is this money or other money that he is investing.
In any event, it would seem that all agree that the heter does not apply when the borrower does not invest any money whatsoever.
Another problem arising in this context is that the allowance is based on the fact that we calculate the yield on the investment and divide up the profits between the partners. Today, however, the banks extend loans knowing from the outset how much they will receive, regardless of the actual yield on the investment. This problem has various solutions:
1) It may be decided that the bank will not rely on the borrower's reports regarding the yield on his investments, but rather require proof that the borrower will never be able to produce. The bank can also declare that in exchange for an appropriate sum, it is willing to waive this requirement and accept repayment of the principle, and thus in effect receive interest.
2) A second solution is based on the Yerushalmi Talmud. Once again, the bank may set impossible conditions regarding the proofs that the borrower must bring regarding the yield on his investment. The bank may announce that in the absence of such proof, it will decide on a certain sum that it will collect from the borrower's profits, and the rest the borrower will be permitted to keep for himself. This effectively states that until he reaches that sum of profits, the money is in his hands as a deposit, and from that point on, it is a loan (this exercise assumes that the borrower will indeed make a profit).
DOES THIS INVOLVE EVASION OF RIBBIT?
We are dealing here with an acute instance of evasion. Regarding the first possibility appearing in the Rashba and the Rivash, that we sever the interest from the loan, the Rashba writes that this involves an evasion of ribbit. The Rivash writes that it is absolutely permitted, whereas the Vilna Gaon maintains that it is full-fledged ribbit.
The Shulchan Arukh (Yore De'a 177:14) rules that it is an evasion of ribbit, following the Rashba, but the Rema writes that evasion of this type is absolutely permitted, as argued by the Rivash.
It seems that this possibility involves far less evasion than the heter iska as it is employed today, for in that case everything is laid out in the open on the table, whereas in the heter iska, there is ribbit, but we call it by other names. What is the more, the bank manager does not understand the allowance, nor do the borrowers. He who wishes to rely on the allowance should understand its nature, and it is desirable that he himself arrange the loan with the bank manager and that he explain to him how it works.
As stated above, the problem here is one of evasion in general, and evasion of ribbit in particular. For this reason, the problem is not merely formal, but also one of values. We saw above that evasion is more forbidden in Torah ribbit than in rabbinic interest, and therefore the deal should be arranged in such a way that the interest is forbidden only by rabbinic law.
For example, a person who lends to a corporation, and not to private individuals, cannot collect from the personal property of the corporation's owners, but only from the assets belonging to the corporation. The Gemara in Bava Metzia implies that when there exists only a lien on property, but not on the borrower's person – the interest is forbidden only by rabbinic decree.
Thus, it would appear that if a person lends money to a bank, we are dealing with ribbit that is only by rabbinic decree, but if he borrows money from a bank, the ribbit is by Torah law. For this reason, the interest paid on one's overdraft is more problematic than the interest received in one's savings account. It would seem that even such a deposit is governed by a stringent rabbinic prohibition, for in terms of the nature of the transaction, it is ordinary ribbit, and it is only the identity of the lender and the borrower that is different.
In practice, then, it is desirable to use the heter iska only for loans to the bank, and not for loans from the bank (mortgage or overdraft), and even then to arrange the matter in person or at the very least to understand the allowance well. It would be better to look for an allowance in the direction of the position of the Rashba and the Rivash, but practically speaking, such an allowance is more difficult to employ.
In this shiur we have dealt with various allowances regarding the prohibition of ribbit, and with the problems arising from each of them: the allowance to lend to a non-Jew at interest, separating the ribbit from the loan, and the heter iska.
We dealt with the various problems that arise, with emphasis placed on the issue of evasion and with possibility of overcoming this problem in the case of rabbinic interest.
In conclusion, we dealt with the heter iska, the foundations of the allowance, and its practical application in our time.
*This shiur was delivered in the Yeshiva in Cheshvan, 1995, and summarized by Matan Glidai. It was not reviewed by HaRav Lichtenstein.
 Based on the Gemara, ad loc., and Rashi, s.v. ha-arama biderabbanan hi. The author of the Tevu'ot Shor adopted a similar approach, when he ruled that the sale of chametz is valid only in the case of rabbinic chametz.
 The Rivash restricts his allowance to the case where the lender gives the borrower produce in exchange for the money, so that indeed it looks like a sale.
(Translated by David Strauss)