|Ask Rabbi Simmons|
I have been advised that one Jew (the lender) forced another Jew (the borrower) to sign a document which permitted the lender to charge interest to the borrower on the loan. What is the law on charging interest to a fellow Jew. Secondly, I believe the document was called a "heter iska" and it may have been signed or witnessed by a rabbi. Is this normal and what is the significance of this document?
The Torah states that it is forbidden for Jews to charge interest from fellow Jews (Leviticus 25:37).
Maimonides comments on this passage that the highest form of charity is to prevent a person from becoming poor, by offering a loan or employment, investing in his business, or any other form of assistance that will avoid poverty.
Interest is any time a person gets back more than they loaned, whether it was pre-arranged or not. Not only is it forbidden for the Borrower to give the Lender back more money than what was loaned, but he must not give anything extra as a result of the loan.
What about business loans?
There is a certain kind of a loan in which Mr. A gives, let's say, 100 dollars to Mr. B, of which 50 are a loan and 50 are an investment, in order that Mr. B take all of the money (all 100) and do business with it. The profits will then be split 50-50. This is permitted under certain conditions, even though the only reason why Mr. B is doing business for Mr. A is because he loaned him the money (which apparently, is forbidden because it is interest).
Two possibilities in which it is permitted are: If Mr. A pays Mr. B a set amount for doing business for him. Or: They agree that Mr. B has a choice to either pay Mr. A a set amount for whatever profit is made and Mr. B can keep the rest -- or just give Mr. A half of the total profit.
This latter condition is mostly used today. It is proper to write up this agreement in what is called a "Shtar Iska." A copy of this text can be found in the Kitzur Shulchan Aruch, chapter 66. A Shtar Iska is displayed in most banks in Israel.
In any case it is permitted to borrow and/or lend from a non-Jew with interest, so many observant Jews prefer using banks that are owned by non-Jews for this matter.
There are also rabbinic authorities who say there is no prohibition of taking/giving interest from a corporation, only from individuals. Some people rely on this in case of great necessary.
Please note: Since the laws of interest in the Torah are very complex, please do not rely on this information in actual cases that may arise without consulting your local rabbi.With blessings from Jerusalem,
Rabbi Shraga Simmons