Q:

"I've been asked to lend a large sum to a non-profit institution. The problem is I don't want to lose the dividend income from my money, but it is forbidden for a Jew to take interest on a loan to another Jew. As a solution, they proposed some sort of investment arrangement, whereby the revenue I lose by letting them use my money would come back to me as my share of the profits. How can this be? What profit cana non-profit institution possibly earn?"

A:

The arrangement you are talking about is called "heter iska" ["permission to do business"]. The earliest known formulation of such a document seems to date from 16th century Europe. Funds for capital investment were scarce, yet the need was great since in many cases Jews were forbidden to own land and barred from many trades. The Torah prohibition against lending (or, equally, borrowing) money with interest is quite severe, and is the subject of many different verses. On the other hand, when a large sum of money is involved, it is difficult for the owner to give up the significant profits this capital could realize if left available for investment or deposit, even if he is willing to take the risk of lending the principal.

The basic idea is to create a limited profit-sharing partnership rather than a debtor-creditor relationship. The document used is in no way a subterfuge or ritualistic formula; a genuine business relationship is created. There are many intricate technical details involved, with safeguards for both sides, so it is highly advisable to enlist the mediation of a knowledgeable rabbi. It is also possible to utilize a standard form printed in the various reference works on Jewish business law [in English: The Abridged Code of Law 66:6-8, or Contemporary Halachic Problems II, Rabbi David Bleich, pp. 386-388. The latter has an excellent overview of the entire subject pp. 376-384].

Without a doubt, the bottom line of a non-profit organization is nearly always minus, especially if it is "successful" i.e. highly active. Even so, some of their available funds could have been invested profitably, even if the income generated is never enough to cover all the operating costs of the institution.

For you, the lender, it is enough to know that the organization could be investing your money profitably. Indeed, some authorities (such as the late Rabbi Moshe Feinstein) insist this is mandatory and must be stated in the written agreement. On that basis, you are entitled to assume that the organization indeed is generating profits with your money, and therefore the payments you receive above capital are legitimately return on investment and not interest.

The borrowing institution, for its part, is content to make these limited payments even if no gain was realized, thus saving its directors from having to swear an oath in rabbinical court attesting to its lack of profit or face a full audit of its accounts and records.

In a case where the organization is buying property or paying a mortgage, the arrangement can be both simpler and more straightforward. For one thing, real estate values are likely to rise. Also, an appropriate percentage of the property may be deeded to the lender-investor, with subsequent return of the loan taking the form of rent payments.

It is a big mitzvah to lend money to fellow-Jews, and especially to Jews who use the money for the benefit of other Jews. I hope my brief reply has helped to set your mind at rest. Don't hesitate to ask for more details.

Yrachmiel Tilles