Interest, Ribit and Riba: Must These Disparate Legal Concepts Be Integrated or Is a More Nuanced Approach Appropriate for the Global Financial Community?
THE DEFINITION OF THE TERM “RIBIT” AND A DISCUSSION OF THE ORIGIN AND NATURE OF THE PROHIBITION
The Bible,[1] in Deuteronomy[2] prohibits an individual from charging or paying “Neshech”[3] to another individual. This includes Neshech as to money, food or other things for which Neshech is [typically] taken.
Another similar prohibition is set forth in Exodus.[4] It provides that when an individual loans money to another then Neshech should not be imposed.
In Leviticus,[5] another term is introduced besides Neshech. Thus, when helping someone who has suffered diminished circumstances, there is a prohibition against charging Neshech or “Tarbit”.[6] The Bible[7] then goes on to say that you shall not provide money on the basis of earning Neshech or provide food on the basis of earning “Marbit.[8]
What is “Neshech” and what is “Marbit” is the subject of a discussion in the Talmud[9] in the Tractate of Bava Metzia,[10] aptly entitled “Eizehu Neshech V’Eizehu Marbit” (What is Neshech and What is Marbit). It would appear that the term Neshech is usually used in the context of earning interest income on money that is loaned. Marbit is a synonymous concept that is usually employed when dealing with a commodities futures contract for the provision of food as opposed to money. Nevertheless the conclusion of the Talmudic discussion is that they both have the same meaning and can be used interchangeably.[11] The more modern term “Ribit” is derived from the root of the Biblical term “Marbit” noted above.
What is and is not prohibited interest (i.e., “Ribit”) is discussed at length in the Talmud and among later Halachic authorities. In this regard, I note in passing a Tosefta[12] that demonstrates just how abstruse the meaning of the term can be in practice. Thus, the Tosefta states that there are things, which are Ribit; but are nevertheless held not to be Ribit. Examples of the principle cited are then provided in the text. One example given is concerning a loan that is sold at a discount. Another is about an “Shtar”[13] (likely a commodities future document but possibly a bond) sold at a discount. Both of these transactions yield what would otherwise be “Ribit” and yet the Tosefta holds they are not Ribit.
Consider, it is prohibited to charge or pay interest; however, it would appear to be permitted to sell, at a discount, the obligation to make payment by a certain date of a fixed sum. In effect the typical sale of T-Bills at a discount to yield an equivalent rate of return to prevailing market interest rates is permitted. However, entering into a T-Bond with the same rate of return (albeit, stated as an interest rate instead of a synonymous yield to maturity) is prohibited.[14]
Consider also a variety of items that are Halachically held to be prohibited Ribit; but which in common usage would generally not be considered to be interest, as follows:
1. A thank-you note or gift;
2. A service of some kind performed by the borrower for the lender that is not separately remunerated;
3. A favor done by the borrower for the lender in response to the kindness of making an interest free loan; or
4. An installment purchase agreement where the deferred purchase price is higher than the all-cash price.
5. A bond or finance lease, where the Landlord (Lender) bears no risk of loss.[15]
On the other hand, selling one’s own check at a discount[16] is not considered to be Ribit. Furthermore, while having two different sales prices, one for an all cash purchase and one for a deferred purchase is held to be Ribit; nevertheless, under certain circumstances, a price fixed on the basis of a deferred payment arrangement can be discounted for cash.[17] Moreover, the Talmud held that a trust for the benefit of orphans could make loans and charge interest, which is exempt from the prohibition against Ribit, under certain circumstances.[18]
Is this all mere sophistry? For example, is there a genuine difference between the T-Bill discount and the T-Bond stated interest rate noted above? Under US Law the answer is that, in practice, there is no real distinction between the two concepts; they are in effect the same thing. Why then prohibit one and permit the other under the Halacha and the Sha’ariah? Is this really a matter of form over substance? It is suggested that the answer is not that simple. It requires further analysis to develop an approach that may help answer this fundamental question.
[1] Tanach an acronym (”TN’K”)- meaning Torah (the Five Books of Moses), Neviim (the Prophets) and the Ketuvim (the Holy Writings) also known as the Septuagint, the original Greek translation of the Bible that the Talmud views as authoritative
[2] Chapter 23-Verse 20
[3] The term “Neshech” is often loosely translated to mean interest but the word literally means a “bite” or “biting”.
[4] Chapter 22-Verse 24
[5] Chapter 25-Verse 36
[6] The term “Tarbit” is also loosely translated to mean interest but the word literally means an “addition”.
[7] Supra 26 . See Verse 37
[8] See definition of the term “Tarbit” above. The term “Marbit” also is loosely translated to mean interest but the word literally means an “increase” or “addition” and is derived from the same root as Tarbit. See also definition of “Ribit” below, which is derived from the same root.
[9]The Talmud referred to herein is the Bavli. It is an encyclopedic work compiled and edited in about the beginning of the 6th century in Babylonian by Ravina and Rav Ashi, who were the leading Amoras (Halachic spokesmen) of their generation. It is organized along the lines of a prior compilation of laws known as the Mishna, which was edited by Rav Yehuda, HaNasi (literally the leader) in the beginning of the 3rd century in the land of Israel. Both works were intended to summarize the body of oral laws and traditions that explain and codify the law and lore sourced in the Bible in detail. Subsequent enactments are also detailed. The Bavli, which was edited in Babylonia, is to be distinguished from a prior version of the Talmud, known as the Yerushalmi (or Jerusalem version), which was edited in the Land of Israel. The printed text of the Talmud Bavli used is known as the Vilna Shas.
[10] Chapter 5
[11] Ibid.
[12] The Tosefta is a body of Tannaic writings that was collected but which was not included by Rabbi Yehuda, Hanasi in the Mishna, and the authoritative work of Tannaic literature he codified at the beginning of the 3rd century. It is thus helpful in terms of helping to understand the Mishna (as a contemporary expression of thoughts on the same subject matter as the Mishna, but is not itself authoritative. The concepts cited are found in Chapter 4 of the Tosefta on Bava Metzia, in Paragraph 2.
[13] A written document that is witnessed by at least two qualified and competent witnesses. It is not an agreement in the sense understood under US law. Rather, it is what amounts to presumptive evidence as noted below.
[14] See an analogous example of selling one’s own check at a discount that is also not prohibited Ribit, as reported herein.
[15] A form of lease that is based on the so-called triple net form, but, one where the Landlord, in effect, bears no risk of loss, at all. This concept of a lease being a prohibited Ribit or Riba transaction is more fully discussed below.
[16] As described in Brit Yehuda 15-17 by Rav Blau, provided don’t violate certain conditions.
[17] After the transaction is symbolically consummated by way of a kinyan.
[18] In the Talmud, Tractate Bava Metzia at page 70a, there is a discussion about how a trust for the benefit of orphans may be permitted to charge what is considered rabbinically proscribed interest. Similarly, a charity may also be permitted to charge such Ribit. See also Tosafot (which posits that since the lender is exempt from the prohibition against Ribit under these circumstances then so is the borrower) and Ritva on the text cited above.
Leonard Grunstein 