In this week’s Parsha (Devarim 23:21-22), the Torah restates the prohibition against entering into interest-bearing loan agreements. While all Torah-observant Jews are aware of the basic concept of ribbis and would never dream of charging interest outright, sadly, many do not know how the concept of ribbis applies to the realities of modern life. One of the benefits of our modern economic system is that it offers countless ways to obtain personal and business financing, but with these opportunities come the real danger of entering into a financial arrangement which may in fact require the payment of interest to or from another Jew.

Let us analyze the following fairly common example. Reuven and Shimon own a trucking company in partnership and are looking to purchase a new computer system for their business. They call down Levi from ABC Computers and he puts together a package for them totaling $20,000. Levi also says he can arrange financing for them through Star Equipment Financing (SEF) at an annual rate of 5.9%. With no money down, the loan would require them to make 36 monthly payments of $608. Because their company does not have a sufficiently high credit rating to secure the loan, Levi recommends that either Reuven or Shimon should apply for the loan under his own name, and not under the name of the company. Reuven, who has the better credit score of the two, agrees to sign for the loan but only after Shimon agrees to obligate himself to be personally and equally responsible for the loan payments that Reuven will need to make to the finance company. Reuven and Shimon are successful in obtaining the loan from SEF using Reuven’s credit, and the business begins to make the monthly payments to SEF. Whether they realize it or not, Reuven and Shimon have just entered into a ribbis agreement with one another.

The reasoning is as follows:  Reuven and Shimon are purchasing the computer system together as partners. It follows that each one of them must pay $10,000 to ABC Computers. While Reuven is borrowing his $10,000 from SEF, Shimon cannot be viewed as borrowing his half from them. SEF does not know who Shimon is, and never agreed to lend him any money. Rather, the reality of the situation is that Reuven is borrowing the second $10,000 and in turn is lending it to his partner Shimon so that Shimon will have the money to pay his half of the bill to ABC Computers. It follows that when the partnership makes a payment of $608 (of which $304 technically belongs to Shimon) to pay down Reuven’s loan from SEF, what is actually happening is that Shimon is taking $304 and giving the money to Reuven, thereby paying down the loan that he received from him as per their agreement. Reuven is then taking that $304 and paying down his loan to SEF. And since 304 times 36 equals 10,944, that means that Shimon is paying Reuven $944 in interest, a rate of 5.9%!

In other words, since Reuven solely took out the loan from SEF, he is solely responsible for the interest on that loan. Reuven cannot pass on half of his interest charges to Shimon because Reuven is not allowed to charge Shimon interest on the money that Shimon borrowed from him to pay for his share of the computer system.

This problem is not limited to partnerships or only business scenarios. In fact, almost every time someone “uses” someone else’s credit, there will be a problem of ribbis. Two common examples of these kinds of arrangements are taking out a second mortgage so that a friend or relative who does not have enough credit can purchase a home, and allowing someone to use your credit card; any arrangement in which someone is taking out a loan for someone else and passing on the interest charges.

Is there a halachically permissible way to structure such an arrangement? After all, there are very few people who would be willing to take out a loan for someone else and also pay their interest payments! The person who is taking out the loan is simply trying to do a kindness for someone who cannot obtain a loan on his own. He is not trying to make money on the deal, but he doesn’t want to lose any money either.

In fact, Halacha does provide a legal method by which these types of loan arrangements can be structured. It is called a Heter Iska (heter: a permit, iska: investment). Without getting into all the intricate details, suffice to say that a Heter Iska is not some sort of magical document that permits one to collect interest on a loan. Rather, an Iska contract works by structuring the loan as a blind investment, thereby allowing the lender/investor to collect payments as profit on his investment in place of interest on a loan. Accordingly, the “borrower” technically is not held personally responsible for loss of the principal investment (which takes the place of the loan) and does not personally assure the investor of profits (which takes the place of the interest). Since this would create an undesired risk for the lender/investor, an Iska contract uses various techniques to reduce this risk to a minimal level. The result is a financial arrangement which although technically not a loan, does function in a way which is extremely similar to one.

In our example of the two partners purchasing computer equipment, because Shimon’s agreement to pay interest to Reuven was already finalized and some payments were already made, the fashioning of the Iska contract would be more complex. Also, the fact that the money was used to purchase equipment for the partnership complicates it further. Nevertheless an Iska contract still can, and must, be arranged for any future payments.

In summary, we can say that with regard to the laws of ribbis, as with many other areas of Choshen Mishpat, “doing it the right way” doesn’t necessarily entail great sacrifices or cost a lot of money. Many times, it only takes awareness of the relevant halachic issues that may come up in one’s daily business. So, when it comes to staying clear of charging interest, all it might take is to take interest in interest.