Lending With a Heter Iska

Based on Ahavas Chesed vol. 2 chapter 15 – part 1

If the Beis HaMikdash were standing, the Chofetz Chaim says, each of us would make a point of traveling there – if not regularly, then at least once – in order to offer a sin offering or a guilt offering so that we might take advantage of the atonement that it effects. The journey might be incredibly expensive, but we would do so happily because of the benefit it would offer our souls. So why, having read the last few chapters, hasn’t everyone run out and established a personal free-loan fund according to their means? It effects even more atonement than offering sacrifices!

Remember the story of Rabbi Yochanan ben Zakkai (Avos d’Rabbi Nosson 4:5). Once, he was walking with Rabbi Yehoshua past the ruins of the Temple. Rabbi Yehoshua lamented that the place where we could atone for our sins had been destroyed, and Rabbi Yochanan ben Zakkai comforted him by pointing out a source of atonement just as good: performing acts of chesed. He cites Hoshea 6:6, in which God says, “It’s chesed I desire, not sacrifices.” So, establishing a personal chesed fund should be a no-brainer, seeing as it’s as effective as bringing an offering in the Temple.

The Chofetz Chaim argues for performing chesed on so many fronts in order to counter the excuses of the yetzer hara, which attacks the idea of chesed on an equal number of fronts. As soon as we come into money, the yetzer hara tries to convince us not to lend it to anyone, regardless of how trustworthy they may be. One would sooner entrust it to a moneylender, who will lend it out and turn a profit for him. This leads to the terrible sin of charging interest, which could easily be avoided with a heter iska. What’s a heter iska? Read on!

What normally happens is that someone gives money to a moneylender, asking him to generate a profit for him. He receives a contract from the borrower guaranteeing the loan with interest. This violates the prohibition against lending with interest, which is a sin that can preclude one’s return at the future revival of the dead. This is what necessitates a heter iska. (Please note that while lending with a heter iska is permitted, it’s a greatly diminished form of chesed.)

Okay, so what’s a heter iska? Basically, it’s a loan combined with a business arrangement. The borrower agrees to repay the loan by a certain date, but there’s also an investment agreement. If the investment turns a profit, the proceeds are split between the borrower and the lender. If the investment loses money, they similarly share the loss. The borrower must swear an oath as to the profit or loss, but he can pay a certain amount to waive the oath.

The heter iska came about as a response to the needs of those who could afford to lend out large sums of money, the profits of which the lender might reasonably be expected to need. Now, however, people have come to use it as a matter of course. Even when lending small sums of money, which would generate modest returns at best, they rely on a heter iska, which undermines the foundations of chesed.

This isn’t the way to do it. Even if there’s no interest involved, it’s better to lend directly to a trustworthy person – or to one who offers collateral – secure in the knowledge that if we take care of others, Hashem will take care of us. But instead of doing this, people would rather undermine the trait of chesed in order to make a little money. And sometimes they end up losing money! While using a heter iska is not technically interest, it kind of smacks of interest, and the Gemara (Bama Metzia 71a) says that charging interest ultimately causes one a financial loss. Conversely, the Gemara in Kesubos (66b) tells us that the way to safeguard our portfolios is to reduce them, which we do by giving tzedakah and extending interest-free loans.

If one is going to lend using a heter iska, he must ensure that it’s properly written in order to avoid the prohibition of interest. As we have noted, charging interest not only causes one to lose his wealth, it prevents his future return from the dead. Chazal have told us (Yalkut Shimoni Yechezkel 375) that when the prophet Yechezkel revived the dead in the “valley of dry bones,” the only person not resurrected was one who had lent money with interest.

One must also remember that using a heter iska doesn’t exempt one from the obligation to extend free loans. He can’t justify that, as a professional moneylender, people can’t expect him to just “give away” his professional services. He still has to do chesed, just like anybody else.

If someone feels he’s being approached by more potential borrowers than he can afford, the Chofetz Chaim advises that he do as was previously described: establish a personal free-loan fund with the money that he feels he can dedicate to that purpose. This is much better than lending most of his money in a business arrangement and only a little of it for free.

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