Interest, Ribit and Riba: Must These Disparate Legal Concepts Be Integrated or Is a More Nuanced Approach Appropriate for the Global Financial Community?
THEORY VERSUS PRACTICE – IS THERE A GENUINE PROHIBITION IN OUR TIMES?
It would appear that the extremely onerous prohibitions against interest have seemingly been circumvented in practice over the last few thousand years; virtually from the very inception of the prohibition in the Bible, by all three major Religions (Christian, Moslem and Jewish). They all proclaim to live by the terms and conditions of the Bible. They all derive their ethical, religious and legal systems from the very same Bible. Yet all three have found a way to charge interest in practice, despite what appears to be an express prohibition against charging or paying interest.
Rabbi Baruch Halevi Epstein[1] (author of the seminal work on the Bible known as the Torah Temimah[2]) took up the issue in another of his commentaries on the Bible known as, the Tosafot Bracha.[3] In commenting on the prohibition of Ribit, he noted the world of the exile was very different from that of ancient Biblical Israel. When the Jewish people lived in the Land of Israel, they functioned within the context of an agrarian economy. Rabbi Epstein went on to say that in his time, the only occupation available to observant Jews, as a practical matter, was in trade or money lending. They were not landed gentry, as in days of yore.
Rabbi Epstein analyzed the economy of his day and found that a money lending or banking system[4] was a structural requirement for business and trade to function properly. Much like the comment made by Rabbi Aaron Solevetchik[5] noted below, the modern economy couldn’t function without banks being available and loaning money. As we all witnessed recently, a breakdown in the banking system can paralyze the economy generally. Rabbi Epstein points out, that absent these opportunities to do business, the Jewish people would be without the means to support themselves in the exile.
This is unlike the Biblical economy. As Rabbi Epstein pointed out, Biblical Israel was a society where owning land, devoted to growing wheat and other foodstuffs, was critical to subsistence. In that kind of an agrarian economy, there was no real need for money. As a nation of landowners, inheritance of land and keeping it in the family was a pre-requisite to success. The wealth was in the land. Rabbi Epstein points out that those with a surplus might as well loan it without interest to their brethren as a good deed. This is because there was little else that could be done with surplus money in a subsistence economy. Indeed, if anyone needed money it was because they were destitute. They could hardly be expected to pay interest; they might not even be able to repay the principal. The charging of interest in that kind of a situation is therefore “Neshech” (biting).
In our times, it is often the borrower who prefers to pay a fixed charge for money, instead of making the lender a partner. The unlimited return potential is reserved to the borrower/entrepreneur. The lender may want to be a partner, but the borrower is just as likely, or more likely, to insist that only interest be paid for the money, not a profit share.
Today’s world economy is about business and trade. Money is the lifeblood of the economy. Land may still have some value for agricultural use, but its highest and best use is usually non-agricultural. Often, real estate is best used as part of a trade or business. Commerce (and hence money) is the source of prosperity and in substance the only real source of income (and therefore sustenance) for the Jewish people.
Rabbi Epstein finds that the Heter Iska was the mechanism that the Rabbis enacted to permit businesses to borrow needed capital so as to enable the businesses to function. He goes on to posit that the Bible itself implicitly provides the basis for the Heter Iska exception. The Rabbis did not want to undermine the authority of the Bible, generally, by just excising this express prohibition. Therefore, according to Rabbi Epstein, the Rabbis enacted a mechanism for avoiding the prohibition, as a matter of form, consistent with the philosophy underlying the religious principle of providing money to those in need.[6]
There are similar philosophical underpinnings to the Sha’ariah compliant financing mechanisms noted below. They similarly provide a mechanism to avoid the prohibition against Riba, as a matter of form, consistent with the philosophy underlying religious principle of providing money to those in need on the most favorable terms.
[1] A Halachic authority of the early 20th century.
[2] A commentary on the Bible that cites to texts in the Talmud, which discuss the particular verse in the Bible.
[3] Leviticus: Chapter 25-Verse 36
[4] Rav Epstein uses the term “Ezrat Kessafim” to describe the banking or money lending function that is an integral and vital element of commerce and trade. Otherwise, as he notes, business cannot “take hold”.
[5] A 20th century Halachic authority. He is the brother of another eminent Halachic authority, Rav Yoshe Baer Solevetchik. Both were also leading professors of Talmud at Yeshiva University.
[6] Lo Tinayl Delet,..(literally, don’t close the door on borrowers) as quoted in the Talmud Tractate Bava Metzia at page 68b. (See also Talmud Tractate Sanhedrin at page 3a.) This concept is also used as the basis for other enactments like Prosbul (a mechanism whereby the biblical requirement that debts be forgiven every 7 years is avoided) that appear, at first blush, to prejudice the borrower; but, in reality enable the borrower to obtain funding. (See Talmud Tractate Gittin at page 36b.)
Leonard Grunstein 