(2007/5767)
Parashat Mishpatim (Shemot 22:24) mentions the prohibition of charging Ribit (interest). I would like to take this opportunity to discuss some of the laws of Ribit. Many are perplexing and difficult to understand, while others seem obvious and simple. This essay will illustrate and explain some of the more relevant cases of Ribit.
To begin, I would like to explain the concept of charging extra for a loan. Let us say that a person needs money to pay his rent. He goes to his friend and asks for a $300 loan. The friend agrees to lend him the money, but only if the borrower pays back an extra $50. This is called Ribit Ketzutzah (pre-arranged interest), and is the only type of Ribit mentioned explicitly by the Torah.
Chazal expand Ribit Ketzutzah to include non-monetary issues as well. For example: Samuel and Jonathan go to a pizza store. Jonathan has enough money for only one slice but would like to buy a vegetable slice as well. He asks Samuel for a loan of two dollars, to which Samuel replies that he will lend the money to Jonathan only if he buys a mushroom slice and lets him (Samuel) have a piece. Jonathan agrees. Although this might not seem like a case of Ribit because he just asked for a small “favor”, it is actually Ribit Ketzutzah according to the Chachamim because the “interest” was fixed at the time of the loan.
Another form of Ribit which Chazal address is in a case where, while a loan is outstanding, the lender asks for a favor. For instance, someone lends another person money and asks to be paid back in two weeks (without any extra money). During those two weeks, the lender repeatedly asks for favors stating that it is only fair since he lent the borrower money. This is Ribit because if he had not been lent money the borrower would never have done these favors for the lender. A similar, but opposite, case would be if the borrower refuses to pay back the money if the lender does not do him a favor. This case, though, would probably not be called Ribit, but rather stealing, since he is illegally withholding the money which was loaned.
What if a person gives money or a present to influence someone else to lend him money in the future? Is this Ribit? Although it may just seem like smart business tactics, it is in fact Ribit and is closely related to the previous case. Instead of asking for a favor after the loan has already been given, this case is when one does a favor before the loan is given. Therefore, this conceptually identical case is also Ribit, since the borrower has influenced the lender to give him a loan.
The question thus arises if there is any possible way to lend money, charge interest, and still avoid transgressing the law of Ribit. A Heter Iska is an instrument which allows a lender to lend money to a borrower and be permitted to collect interest on the loan. On a simple level, this document, signed by the lender and the borrower, transforms the loan into an investment, and thereby transforms interest into the investment’s profits. There is a catch, though. Heter Iska is valid only if the money is being borrowed to invest in a business or property, or to free up other money to be used for a business transaction. One may not use a Heter Iska on a simple loan. Unfortunately, the Heter Iska is inappropriately overused nowadays. (Editor’s note: one should consult his Rav as to when it is appropriate to use a Heter Iska.)
One is obviously not allowed to charge Ribit on a loan, but there are a few exceptions to this regarding neighbors. If a neighbor borrows flour, he is permitted to return an insignificant amount more than was lent originally, because neighbors (with good relations) generally overlook such a miniscule amount. Also, if one is not sure exactly how much he borrowed, he may give more than what he thinks in order to cover all his bases. There are some neighbors who are used to borrowing objects and not returning them, so, between these neighbors Ribit is permissible. These lent items were not in fact loans, but rather gifts. The last exception is that of a neighbor who borrows something, after which the price of the item fluctuates. He may return the object even though it is worth more or less than the original price, since neighbors usually do not care about such a small difference. (Editor’s note: one should consult his Rav about such matters. Rav Mordechai Willig has advised that such exchanges between neighbors should be characterized as gifts in order to avoid questions of Ribbit.)
There are many more cases of Ribit mentioned in Chazal, but the aforementioned cases are most common. We should all take care not to violate this highly complex area of Halacha due to simple ignorance. One who studies the laws of Ribit will surely not transgress them. There are many Sefarim on the subject, and everyone should make an effort to acquaint himself with this important area of Halacha.