The Heter Iska Agreement
By:
Dayan Yoel Smith
In the vast tapestry of Jewish legal tradition, the prohibition of charging and accepting interest – ribbis – stands as a testament to the ethical and moral underpinnings of economic transactions within the Jewish community. At its core, the prohibition of ribbis is derived from several biblical injunctions[1] which forbid the charging of interest on loans made to fellow Jews. The rationale behind this prohibition is multifaceted, encompassing both ethical and economic considerations. Sefer Tehillim reveals the intent with which Hashem created the world. It teaches us that “the world was built on a foundation of kindness”[2]. Extending an interest-free loan is a tremendous act of kindness and since kindness is the foundation of the world, the Torah goes as far as
prohibiting the Jewish People from charging interest, which would mean losing an opportunity to act with kindness.[3]
An additional reason for the prohibition of ribbis is that Hashem wants Jewish society to be prosperous and harmonious, therefore ribbis is prohibited in order to ensure that the less fortunates’ wealth is not entirely consumed by paying back interest.[4]
In light of the prohibition of ribbis, Jewish legal scholars have clarified how the Torah allows for the facilitation of legitimate economic transactions while adhering to the principles of halachah, Jewish law. An example of this is the ‘heter iska’[5] (dispensation of investment), which provides a framework for structuring financial agreements in a manner that is both halachically permissible and commercially viable. Heter iska refers to a legal instrument that transforms a conventional loan into a business partnership. Under a heter iska arrangement, the lender and borrower enter into a mutually beneficial partnership wherein profits and losses are shared. This partnership model allows for the lender to receive a return on their investment without running afoul of the
prohibition of charging and taking interest. The enduring relevance of the prohibition of ribbis with the parameters of the heter iska underscores the resilience and flexibility of the Torah in addressing contemporary ethical dilemmas. With compassion, and mutual responsibility, the Jewish community continues to strive towards creating a more just and equitable society, both within its own ranks and beyond. Through the heter iska, Jewish individuals are able to engage in financial transactions that align with their religious principles, fostering economic relationships grounded in ethical integrity and
mutual benefit.
For guidance with a heter iska please contact the Beth Din.
BIO:
Dayan Yoel Smith, son of Rabbi Dovid Smith, the late Chief Rabbi of Lithuania, studied in Gateshead Yeshiva, UK and then South Fallsburg, USA, before practising as a community Rabbi in both Glasgow and Berlin. After moving to South Africa, Dayan Smith joined the Beth Din in 2016. He also became the Rabbi of Shaarei Chaim community. In his role as a Dayan, Dayan Smith handles legal matters, ranging from arbitration and mediation to litigation and any other matters of dispute which are brought to the Beth Din. Currently, he also plays an important role in the Conversion process.
