Business and Misc.Halachos of Heter Iska

When one wants to lend another Jew money with interest, he may use a hetter iska. A Heter Iska is a document which imitates an interest-bearing loan, while avoiding the prohibition of ribbis, by creating an investment agreement between a lender and borrower (see below)[1] הרבה אחרונים כתבו נוסח ההיתר עיסקא, ע' חכמת אדם (קמג, כ), וקיצור שו"ע (סו, ג).

וע' תורה תמימה (ויקרא פ' כה, הע' קצב) כתב ביאור יפה למה המציאו היתר לאיסור זה, שלא מצינו בכל התורה היתר לאיסורו. . A Rav should be consulted in order to write one and ensure that it is halachically valid. It should be noted that it is always preferable to lend money without interest, as doing so fulfills a mitzva d’oraysa, and because writing a heter iska is a leniency that should only be relied upon when necessary.

The concept underlying an Iska in general is that half of the money is being given as a loan and the other half as an investment. This makes the lender the “investing partner” and the borrower the “managing partner”. Like all partnerships, there is a certain amount of anticipated profit from the investment and it must be divided equally. If the managing partner claims that the expected profits were not realized, he is obligated to swear in Beis Din that it is true. A stipulation is written in the contract that if the managing partner wishes to absolve himself from swearing, he may pay the principal plus an additional __ amount and thus be absolved. Since Orthodox Jews typically refraining from uttering such oaths, the iska effectively creates an obligation to pay a certain percentage of the loan every year, mimicking an interest-bearing loan. (This is permitted even though both parties know that the latter option will always be used[2] ע' ספר הליכות ישראל (הרה"ג י. רייזמאן) עוד בזה. וע' ט"ז (קעז, כא) כ' אסור להזכיר בשכר קיצבה לכל שבוע. וע' נקה"כ (שם) מתיר, וכן נוהגים. .) In practical terms, the percentage of interest written in the iska should be twice the interest rate that would be expected if the entire amount were a loan, because only half of it is income-producing.

The iska contract may specify that the money is intended to be used for a specific business enterprise, or (when borrowing for non-business purposes) in any enterprise which the manager thinks wise[3] אג"מ (יו"ד ב, סב) .

For many businesses, a heter iska klali (permitting forms of financial benefit which are otherwise prohibited due to ribis) should be used; a Rav must be consulted.

In exchange for managing the investment on behalf of the investing partner, the managing partner must be paid. When payment is made at the start of the partnership, he need only receive a token sum[4] ? . The investing partner should pay a dollar[5] ואף בפחות מדאלאר (אג"מ יו"ד ב, סב) to the managing partner after the signing of the agreement. When performing a heter iska klali, this payment is typically written into the agreement, to obviate the necessity of paying the dollar.

Even for the purpose of funding a mitzva, when some kinds of Ribis are permitted, one should preferably sign a Heter Iska[6] ע' ש"ך (קס,?) שלא נהגו כרמ"א ללוות ברבית לצורך מצוה. .

When using a heter iska, it is preferable that the investing partner has no intimate knowledge of the business dealings of the managing partner[7] אג"מ (יו"ד ב, סב) . This is because if the investor knows that the business did not produce the expected profits (e.g., if he knows that the business burnt down and there was no insurance), he may be unable to claim his money from the manager.

There are primarily four limitations which one must be aware of when performing a heter iska:

1.     The borrower and lender must know how a heter iska operates, meaning, that it creates an investor/ manager relationship[8] חכמ"א (קמג, ג), אגרות משה (יו"ד ב, סב), ברית יהודה (לה, ז). . If the borrower or lender does not know how it operates, and merely thinks that after signing this paper, one is permitted to lend with ribis, the heter iska may be invalid. If one performed a heter iska without knowledge how it operates, a Rav must be consulted.

2.     A heter iska only permits payment of moneys which were earned, or could have been earned, by the investment. However, the borrower may not pay any money which could not have been produced by the investment[9] ברית יהודה (לח, ו), ע"פ שו"ת מהרש"ם (ב, סי' רטז).

אמנם, ראיתי בהיתר עיסקא הנפוץ ע"י בית דין מישרים, שכותבים שכל כסף שהלווה משלם שאין להתיר על פי היתר עיסקא, הרי הם שילום של חלק מן הקרן, . Therefore, a Jewish-owned bank, accepting deposits from Jews using a heter iska, may not offer a sign-up bonus for opening a savings account, if the bonus is given instantly upon account opening. This is because it is not possible for the money to have been earned by the investment. Banks operating with a heter iska should therefore delay some time before giving a despositor a sign-up bonus.

3.     A heter iska only permits those profits which were realized from the investment; in practical terms, whatever percentage or payment are outlined in the iska contract. However, since there is still a borrower/lender relationship, the borrower may not benefit the lender in other ways, such as giving him other benefits, monetary or not[10] ברית יהודה (לח, ב), וע"ש שיש צדדים להתיר, כגון אם העיסקא הרויח יותר ממה שהתנו ביניהם, ולכן יש להתיר לבנקים ליתן מדי פעם לחוכסים מתנות בנוסף על הברית שנותנים, וע' חכמ"א (קלא, ו). . For this reason, two people who are friends and give each other presents, must be conscious of this prohibition when they lend money, even with a heter iska.

4.     The borrower must own a business or asset which can feasibly produce the assumed investment gains[11] ברית יהודה (עמ' תרה), וע' שו"ת חת"ס (יו"ד קלד) מקיל בזה.

  . For example, one may take a loan with a heter iska to fund his business, or to pay his mortgage, if the house has some equity remaining. One may not take a loan with a heter iska to pay off his credit card debt if he has no home equity, investment account (such as an I.R.A.), or business, as there is no investment for the investing partner to take part in. One also may not take a hard-money loan if the borrower cannot possibly produce the rate of interest described in the iska[12] וע' אג"מ (יו"ד ב, סב) דדוקא אם שמו בין שניהם כפי ידיעתם שיכולין להרויח בהעסק הפארצענ"ט האמור, עכת"ד. ומשמע בזה שאין להתיר לעשות high-interest (hard money) loans אם אין חלק העיסקא יכול להרויח פי שתים מהריבית הקצוב. (based on that individual’s expertise in business).