By Rabbi Yehonason Dovid Hool

Q:

Reuven, an American tourist in Israel, wishes to borrow some Israeli shekels from his friend and fellow tourist Shimon, and arranges to repay the loan when they return to the US. Is there any Halachic objection to this arrangement, and if not, if Reuven repays the loan in US dollars should he use the exchange rate of the day of the loan or the day of repayment.

Answer:

The halachos of Ribbis, the prohibition of paying interest, are numerous and complex, but we shall try to present a very brief summary with regard to the subject at hand.

The Torah forbids paying interest on a loan. So it would be forbidden to borrow $100 and repay $120. To borrow a kilo of flour and to return 1.5 kilo would likewise be forbidden. However, there should be no problem borrowing a kilo of flour and returning a kilo. Nonetheless, Chazal prohibited such loans (with exceptions, as will be explained), for the following reason.

In situations of inflation or deflation, the Halachah regards the currency as being stable and everything else as fluctuating. So if one borrows, for example, $100, one pays back $100, even if there was deflation in the interim and the $100 has more buying power than it did at the time of the loan. If, however one borrows anything other than currency, e.g. food, goods etc. there is a concern that in the interim there may be inflation, and the goods will increase in value, so that if one repaid the same amount of goods one would actually be paying interest. For example, if one borrowed a kilo of flour from a neighbor, and returned it a week later, and in the interim the price of flour increased, returning a kilo of flour would entail repaying the loan with something that is worth more than the original loan, which involves the prohibition of paying interest.

Therefore, in general Chazal prohibited lending anything other than currency, for fear that the value may increase before the repayment of the loan.

However, there are two leniencies built in to this prohibition. Firstly, if the price is stable, it is permitted, because there is no concern that the price will increase. Secondly, if the borrower has at least a small amount of the borrowed item, it is also permitted. For example, it would be permitted to borrow a kilo of flour if the borrower has at least some flour of his own at home.

What about different currencies? The consensus of opinion among the Poskim is that foreign currency that is not readily usable in the country where the loan is taking place is considered as goods rather than currency.

So to borrow American dollars in Israel would not be permitted unless the borrower owned at least one American dollar of his own. (It has been reported that, in the particular case of US dollars in Israel, Rav Elyashiv shlit”a was inclined to regard dollars as local currency since many significant transactions such as real estate dealings were quoted in dollars. However, since the weakening of the dollar in the last couple of years has caused the market to move towards shekels, it is doubtful whether this would still apply.)

Now we approach the question in hand. What if a loan took place in the local currency, but the repayment takes place in a different country in the local currency of the place of repayment? For example, one lends shekels in Israel with the repayment in US dollars in the US.

There would appear to be a difference of opinion as to how to regard this loan.

Rav Yosef Gelber (Nesivos Sholom 162:1) is inclined to consider this as a loan of money, as this is the local currency at the time of the loan. As such, there would be no problem with the actual loan. When the time would come to repay the loan in the US, one could either pay the same amount of shekels that was borrowed or alternatively, pay the amount in US dollars at the exchange rate of the time of repayment.

(If you want to fix the repayment in US dollars at the exchange rate which is valid at the time of the loan, in effect the “lender” is buying dollars, and it would only be permissible if the borrower has somewhere in his possession the entire value of the loan in US dollars

Q:

I loaned a person approximately $5000 as he was making a wedding. We have been friends for years – part of the same kehilla but I wouldn’t be invited to weddings. Since the loan he feels very indebted and it feels like we are breaching Ribis D’varim. 1/ How long after the loan does Ribis apply. Practically the friendship may be stronger. 2/ Should the loan be converted to a gift, and he can pay back if he wants to as a gift. Would this change the ribis problem as the closeness is now from the gift?

Rabbi Yehonoson Dovid Hool answered:

If he would not have invited you to the wedding without the loan, you may not attend the wedding. The invitation would constitute Ribbis Devorim, but partaking of hospitality at the wedding would be proper Ribbis.

Once the loan has been repaid, you may receive benefits or favours from the borrower if sufficient time has passed, and the size of the favour or gift is small enough that one would not connect it to the loan.

If you were absolutely certain that the invitation was not because he feels indebted but rather simply because you have become closer, albeit via the loan, it may be permitted, but this is very difficult to define, and seems not to be the case in your case.

Converting the loan into a gift, from a practical point of view is inadvisable. Circumstances that apply today may not apply tomorrow. Even if the loan was genuinely converted into a gift, with no obligation whatsoever to return it, there would still be a problem of Ribbis, which applies even after a loan was repaid, unless the time or size of the gift indicated otherwise, as explained above. (Perhaps one could argue that if the loan was converted into a gift then any favours given would be for the sizeable gift rather than for the one-time loan.)

By Rabbi Yitzchok Basser

Q:

I would like to purchase a business that engages in Factoring. This involves purchasing debt at a discount and collecting it at full value. For example, Company A owes Company B $100. The factoring company would buy the note for $75 from company B, and collect $100 from company A when it becomes due.

Should Company A default, there are two types of arrangement possible. In a non recourse arrangement, the factoring Company bears the loss. In a recourse arrangement, the factoring Company would be reimbursed by the Seller (Company B) for the full face value of the debt ($100)

Is there a Ribbis problem with either of these arrangements?

A:

A non recourse structure is permitted. In a recourse structure, If Company B is a not incorporated, there would definitely be an issue of Ribbis, and it would require a valid Heter Iska. Even if they are incorporated, according to many Poskim a Heter Iska should be drawn.

The Shulchan Aruch (CM 173:4) discusses the sale of a Shtar Chov, a loan note drafted by a borrower to the lender. The lender is willing to sell this note at a reduced price for cash up front. When the loan matures the buyer will collect from the borrower the full value of the loan. The Shulchan Aruch permits such a transaction only in the event that the buyer accepts responsibility for the non payment of the debtor (a non recourse sale). Should the seller accept such responsibility, there would be a problem of Ribbis (this concept is known as Karov L’Schar V’Rochok Mihefsed). The source of this ruling is the Ramban, who says that this practice is Rabbinicaly prohibited.

The Nesivos Shalom (ibid) brings a number of Achronim that the Ramban is discussing a case that the buyer can be compensated only for the outlay that he provided to the seller. Should he be guaranteed the full value that the creditor would owe, the prohibition would be prohibited by the Torah. Some Achronim say that if the money can be immediately collected, there would be no prohibition.

In our case, since the money owed by the creditor is generally not immediately collectable (typically the money is not due for 30 days), it would only be permissible to structure the arrangement as a non recourse. A recourse arrangement would involve a Torah prohibition (even to collect from Company A) according to a number of Poskim.

However, there is another issue to consider. Rav Moshe Feinstein (Igros Moshe YD 2:63) permits lending money with interest to a Jewish owned corporation. The reason is because there is no personal liability on the part of the owner, there is merely a lien against the corporation’s assets, the Torah does not consider this to be a loan.

In our case if the company selling the debt were to be a corporation or an LLC, there would be no issue of Ribbis according to Rav Moshe Feinstein.

However a number of Poskim disagree with this ruling (Minchas Yitzchok1:3 and 4:16, Har Tzvi YD 126, Bris Yehuda 7 n:66. See also Minchas Shlomo 28). It would therefore be preferable to write a Heter Iska Klali, which would have to be referenced before each deal is made (with any Jewish owned companies).