10. An iska contract cannot permit [charging interest for a loan] unless it
is true and the monies are, in fact, invested in a business enterprise.
However, if the monies are not used for business purposes, but rather to
repay a loan or the like, an iska contract is not effective, because it is
false.
Nevertheless, in such circumstances, when a person needs money [for
personal use] and possesses merchandise - even if the merchandise is in a
different place - it is permitted [for him to obtain a loan at interest] in
the following manner:
He can sell his merchandise to a colleague at a very low price, provided he
retains the option that he does not deliver the merchandise to his
colleague at an agreed-upon date, [he may free himself of the obligation to
do so] by paying him a sum (which includes a reasonable profit for the
colleague who lent him the money).. Thus, his colleague should give him the
money and they should formalize the agreement concerning the merchandise
with a kinyan sudor - i.e., the purchase of the merchandise [the colleague
lending the money] should allow the borrower to take hold of a portion of
his garment. This formalizes his acquisition of the merchandise even if no
witnesses are present. Nevertheless, the purchaser/lender is responsible if
the merchandise suffers any loss.
11. Similarly, [the above arrangement can be employed] if Reuven is
obligated to pay Shimeon money and when the time of payment comes, Reuven
lacks the money to pay. If Shimeon [will] agree to extend the terms of the
loan [only provided that interest is paid], and iska agreement cannot be
used. Rather, Reuven must sell Shimeon some merchandise he possesses
according to the above condition. Shimeon must return the promissory note
which Reuven originally gave him, and a new contract must be composed
recording the sale of the merchandise according to the above conditions.
12. When one Jew entrusts livestock to a colleague to raise, and the two
agree to divide the profits, the laws governing their arrangement resemble
those governing an iska agreement.
