In this article we will explain shortly what a heter iska is and how it works.
The business world these days is made up of business owners, investors and entrepreneurs.
one of the most accepted and safest ways to invest is an interest loan, the risk is low and the profit is guaranteed.
A loan with interest is forbidden according to the ruling of the Jewish Halacha.
The rabbis recognized the fact that a loan with interest is one of the accepted ways to borrow, so they amended the heter iska.
this is an excellent solution halachically and practically, and we will explain how it works.
A heter iska states that any loan with interest is not given as a loan, but as a partnership.
That is, the lender and the borrower agree that the money will be invested in investments/businesses in which the borrower is invested,
now they are partners in the business and anyway they share the profits.
To facilitate the calculations of profit and loss, a settlement fee is agreed upon that the borrower will pay to the lender as payment of the profits he is entitled to,
and this is the interest rate agreed upon in the transaction.
(For example, if they agreed on an interest rate of 7%, this is the settlement fee due to the lender as payment of profits for his part in the transaction).
In order to assure the lender that he will actually receive the money they agreed upon and the borrower will not claim that he lost in his business – and the lender, the partner – along with him,
it is agreed between them that he cannot claim that he lost the money unless he can prove it by two kosher witnesses who testify that he lost in all his businesses.
Also, he cannot claim that he did not earn, unless he swears to that effect in a distinguished beith din.
For general information, all banks and credit companies of Israel, operate according to the aforementioned A heter iska.
the document is accepted and legally valid by all courts and tribunals.
Best regards,
Yehuda Copperman – Rabbi expert in interest halocha laws,
Head of the Beit Horoa'a of Business according to the Halacha.
Or visit our homepage – click here.
For more information on how a Heter iska works, you can also find it on the Yeshiva website – click here.
For additional articles on the laws of interest – click here.
