As mentioned last week, the heter iska hinges on the fact that the money received from the Jewish lender/bank is an investment. The relevance of this heter isn’t limited to an official loan; it would apply to an overdrawn account, too.
The issue we raised is the very prevalent phenomenon where people borrow not to purchase a property or for other business ventures but rather to pay off debt or to make a simchah. In this case, the money is not being used as an investment, seemingly rendering a heter iska meaningless.
The poskim have developed an innovative solution to this very real issue. If the lender owns property or any other profit source this can save the heter iska. How? The lender is rendered a purchaser of the borrower’s assets. Now the money received from the bank is not a loan or even a classic investment. Rather, it is the payment for the borrower’s most profitable assets. Once the bank owns the property or other profit source, it can now enjoy the monthly appreciation or income generated by the purchase. The monthly payments are the same as a regular iska, a mix of the returns the bank deserves (what they call interest) and the principal.
It is not necessary to have real estate to rely on this heter. Any kind of money-producing investment that one has or will buy is sufficient, such as stocks, shares, or a business. However, a rented apartment usually does not qualify as a profit source, so one cannot borrow based on it.
The borrower must be careful that he consistently meets the criteria. If he is not borrowing in order to invest or to buy something profitable, he must own enough assets to match the sum total of his loans. For example, if he has an apartment worth 2 million shekel, and takes a mortgage and loans (with interest) for 2.5 million shekel, the remaining half-million shekel of his loans cannot be qualified as an iska and is a violation of ribbis.
In summary, one who does not have profitable assets and is not borrowing in order to purchase them is excluded from the heter iska and must make sure never to be in debt to a Jewish bank. There may be some possible heterim, which we will consider next week.
