Matters of Interest

QUESTION: Although it is explicitly forbidden for an individual to charge or pay ribbis, does the prohibition of ribbis apply also to corporations? There is some misunderstanding regarding this halachah. A lenient ruling by Harav M. Feinstein (1) holds that a corporation may pay ribbis for deposits, loans, or credits which it receives, even if the corporation is totally owned by Jews. The reason for the leniency is that a "borrower" is halachically defined as someone who has personal responsibility to pay a loan. When a bank or another corporation is the "borrower", the loan is guaranteed by the company's assets, but not by any individual. Thus there are no Jewish "borrowers" and ribbis may be paid by the bank or the corporation.

This ruling of Harav Feinstein has been accepted by some poskim and rejected by others (2). Obviously, if possible, a proper heter iska (3) should be made before drawing interest from a Jewish-owned bank. If it is difficult to do so, there are poskim who allow taking the interest, as per Harav Feinstein's ruling. [Note that a heter iska does not allow a Jewish-owned bank to offer free gifts to depositors if the gift is chosen and delivered at the time of deposit, since such gifts are a form of ribbis (4).]

Under no circumstances, however, is it permitted to borrow money from a Jewish-owned bank or corporation. Since the borrower is an individual who accepts personal responsibility to repay the loan, the above leniency does not apply (5).

Similarly, lending money to a Jewish-owned corporation with the personal guarantee of repayment by the owners would be prohibited even according to Harav Feinstein's lenient opinion.

For the above reason it is prohibited to buy shares in a publicly traded bank which has a majority of Jewish owners and does not use a proper heter iska when borrowing money from Jews (6). A company in which most of the shareholders are not Jewish but the Jewish minority has significant enough holdings that their opinion carries weight in management decisions, is also considered a Jewish company according to the opinion of many poskim (7).

HETER ISKA

We have previously mentioned the concept of heter iska. While it be would be almost impossible to explain the logic behind this very complicated transaction, suffice it to say that heter iska is a tool--debated, revised, and perfected over many centuries-- with which a lender may lend money to a borrower and be halachically permitted to collect interest on the loan. It is a legal document which transforms the loan [or part of it] into an investment, with a remote chance of loss of principal to the lender. Since ribbis is only forbidden when a fully guaranteed loan takes place, this tool allows the lender to earn "profits" from his "investment" as opposed to "interest" from a "loan", and it is therefore permitted. Heter iska transactions are very common today and, when done under the auspices of an expert in these matters, are used in many business dealings in a permissible manner.

We must, however, point out an important reminder. According to the opinion of most poskim, including the foremost poskim of our generation (8), a heter iska is valid only if the money is being borrowed to invest in a business or in a property, or if the money being borrowed will free other money to be used for a business transaction. A person who borrows money to pay for his daughter's wedding, for instance, or for any other ongoing expenses, and does not have any profit-generating holdings or assets, may not use a heter iska to borrow money (9).

Many people are not aware of this limitation and are constantly borrowing money, or over-drafting their bank accounts from Jewish-owned banks, relying on a heter iska which is unacceptable according to most views. Certainly, one who is scrupulous and is generally not lax when it comes to other mitzvos of the Torah, should be aware that this transaction is not valid according to the majority opinion, and that it may be Biblically prohibited (10). When this situation arises, an expert rav should be consulted, since there are methods that can be utilized in order to make this transaction valid according to most poskim (11).

NEIGHBORS BORROWING GOODS

QUESTION: Does the prohibition of ribbis apply to neighbors borrowing goods from each other? The prohibition of ribbis applies to goods borrowed between neighbors. A neighbor who borrows two challos may return only two challos to the lender (12). If a 5 lb. bag of sugar is borrowed, only that amount may be returned. There are, however, several notable exceptions to this prohibition:

If the difference between the item borrowed and the item returned is insignificant to the degree which people generally do not care about, the prohibition does not apply; a slightly bigger challah, therefore, may be returned (13).

When neighbors have a type of relationship where they are in the habit of borrowing from each other without being careful to return everything they borrow, then the prohibition of ribbis does not apply. This is because the neighbors are not "borrowing" from each other; they are giving each other gifts (14). [Note that many neighbors do not have such a relationship.]

When the borrower is uncertain of the precise amount he borrowed, he may return an amount which is great enough to assure that the loan is paid up (15).

A neighbor who borrows an item from his friend may return that item exactly as borrowed, even if the price of the item has gone up in the interval. This is permitted because prices tend to fluctuate by small amounts and neighbors generally are not particular about such a small difference (16).

FOOTNOTES

2 See the various views in Har Tzvi Y.D. 126; Harav Y.E. Henkin in Eidus l'Yisrael, pg. 170; Minchas Yitzchak 1:3;4:16-17; Chelkas Yaakov 3:190; Minchas Shelomo 28; Bris Yehudah 7, note 66.

3 One must investigate the validity of the heter iska before dealing with a Jewish-owned bank. See Kol ha-Torah # 40 for a review of the recently discovered halachic problems with the heter iska of Israel's banks. Note that many Israeli banks have branches abroad.

4 Bris Yehudah 38 note 10.

5 Igros Moshe Y.D. 2:63.

6 Bris Yehudah 40 note 21

7 Harav M. Feinstein and Harav Y. Roth (quoted in Mishnas Ribbis 2, note 7).

8 Igros Moshe Y.D. 2:62; Harav S.Z. Auerbach and Harav S. Wosner (quoted in Kitzur Dinei Ribbis, Kuntres Acharon 13:3); Harav S.Y. Elyashiv (quoted in Toras Ribbis 16, note 85).

9 Stocks, certificate of deposits, pension plans, or other saving accounts which generate a profit, are considered like a business; Toras Ribbis 16:15. The amount of money lent must be no greater than the amount of money which is generating the profit; Harav S.Z. Auerbach, ibid.

10 Note that there are lenient views, based on the ruling of the Sho'el u'Meishiv (1:3-160); see Darkei Teshuvah 177:41; Chelkas Yaakov 3:199; Bris Yehudah 38, note 18.

11 See Kol ha-Torah, # 43, pg. 250-259 for a lengthy explanation of this issue.

12 Y.D. 160:17.

13 Bris Yehudah 17, note 6; Mishnas Ribbis 6, note 5. See also L'horos Nosson 6:76.

14 The Laws of Interest, pg. 35.

15 Minchas Yitzchak 9:88.

16 Mishnah Berurah 450:2 based on Rama Y.D. 162:1. See Sha'ar ha-Tziyun, ibid.

Weekly-Halacha, Copyright © 1997 by Rabbi Neustadt, Dr. Jeffrey Gross and Project Genesis, Inc.

Rabbi Neustadt is the principal of Yavne Teachers' College in Cleveland, Ohio. He is also the Magid Shiur of a daily Mishna Berurah class at Congregation Shomre Shabbos.

The Weekly-Halacha Series is distributed L'zchus Hayeled Doniel Meir ben Hinda. Weekly sponsorships are available--please send email to the moderator, Dr. Jeffrey Gross jgross@torah.org.

The series is distributed by the Harbotzas Torah Division of Congregation Shomre Shabbos, 1801 South Taylor Road, Cleveland Heights, Ohio 44118--HaRav Yisroel Grumer, Marah D'Asra