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Reuven’s job covered his family’s needs, and even left a little extra. However, he lacked significant savings or investment assets.
Reuven approached the bank for a home improvement loan, which he felt confident that he could cover. However, the bank was hesitant to lend him without additional capital to his name.
Reuven discussed the issue with his cousin, Shimon.
“I just received an insurance settlement of $100,000,” Shimon mentioned. “I plan to invest it in a one-year CD. Rates now are quite good, around 5%!”
“Since you’re not planning to use the money for a year,” said Reuven, “would you allow me to deposit the $100,000 under my name? At the end of the year, I’ll give you the $5,000 interest that the money earns.”
“What’s the point?” asked Shimon.
“This way, the bank will see investment assets under my name,” replied Reuven. “I have a better chance of getting the loan.”
“I’m willing to consider this,” said Shimon. “But how can I prove later that you must return the $100,000 to me?”
“We’ll draft a loan document that you lent me $100,000,” replied Reuven. “This way you’ll be secure.”
“But what about ribbis?” asked Shimon. “If I lend you $100,000 and you return $105,000, you’re paying me prohibited interest!”
“We can draft a heter iska,” replied Reuven. “However, I don’t see why this should be an issue of ribbis. I’m just giving you what you would earn anyway had the money remained yours!”
The two contacted Rabbi Dayan. Reuven asked, “Do we need to draft a heter iska?”
“If you would explicitly arrange not to accept liability for the money, but rather to invest Shimon’s money in a CD and give him at the end of the year whatever you receive back from the bank,” replied Rabbi Dayan, “you would not need a heter iska. You would be considered Shimon’s agent to deposit his money and receive interest for him from the bank. (Y.D. 186:16; Shach 186:34; Bris Yehudah 32:2).
“However, if you accept liability for the money, you become a borrower, and the $5,000 you add is considered interest for the money Shimon lends you. Therefore, although you will give Shimon only what he would have earned had he invested the money himself, you need a heter iska (Bris Yehudah 3:1[4]; The Laws of Ribbis 1:23).
“As I’ve explained in previous cases, the fundamental purpose of a heter iska is to redefine the loan as an ‘investment,’ in which some or all of the money remains – in principle – the lender’s, so that he is rightfully entitled to profit earned from this money. Conversely, loss of this money is theoretically his.
“In the classic iska (silent partner) arrangement – chatzi milveh – half of the money granted remains a loan, for which the borrower assumes liability, and half is redefined as an investment, from which the lender earns profit. This arrangement is mutually beneficial, affording the lender some protection against loss, but allowing him to earn profit that is not considered ribbis (Y.D. 177:2).
“A second arrangement, known as kulo pikadon, redefines the entire loan as an investment. The money remains the lender’s, which the ‘borrower’ invests on his behalf; accordingly, any loss should be entirely the lender’s.
“In most cases, either arrangement can be used, but poskim generally prefer the classic form. (see The Laws of Ribbis 23:8-11).
“In this particular case,” concluded Rabbi Dayan, “since the money is being invested in a secure investment and the agreement is simply to give Shimon the $5,000 earned from the CD, a kulo pikadon form might be more appropriate, since it better reflects the true nature of the agreement.”
Verdict: A Jew can lend a non-Jew with interest on behalf of another Jew if explicitly arranged that the middleman does not to accept liability for the loan, but if he accepts liability, they need a heter iska. Classic iska redefines the loan as chatzi milveh – half loan/half investment; kulo pikadon forms redefine the entire loan as an investment. Poskim generally prefer chatzi milveh, but sometimes kulo pikadon better reflects the true nature of the agreement.
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This article is intended for learning purposes and cannot be used for final halachic decision. There are also issues of dina d’malchusa to consider in actual cases.
To regenerate means to restore or renew something to a better or more vigorous state. It can refer to the process of growth and renewal in living organisms, or the restoration of an area of land or environment. It can also be used metaphorically to describe the process of rejuvenation or revival in a person or community.
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