Reprinted with permission from The Jewish Religion: A Companion, published by Oxford University Press.
Usury is the payment of interest on a loan by [a] borrower to [a] lender. The two biblical passages which forbid the taking of interest are:
“If you lend money to any of My people, even to the poor with thee, thou shalt not be to him as a creditor; neither shalt thou lay upon him interest” (Exodus 22:24).
“Thou shalt not lend upon interest to thy brother: interest of money, interest of victuals, interest of anything that is lent upon interest. Unto a foreigner thou mayest lend upon interest; but unto thy brother thou shalt not lend upon interest; that the Lord thy God may bless thee in all that thou puttest thy hand into, in the land whither thou goest in to possess it” (Deuteronomy 23:20-21).
The meaning of these verses is clear. In an agrarian society a loan to a poor man to tide him over, for instance, until the harvest or to help him buy farming instruments, was a basic act of human kindness which should be done freely without demanding any return. For the lender to take interest on the loan would be to impoverish the borrower still further. But the “foreigner,” the man who is on a visit to the land of Israel, is not bound by this law. He will take interest on any loans he makes to Israelites so that there can be no obligation for the Israelite not to reciprocate and take interest when lending to him.
The Christian church in the Middle Ages adapted the law as it stands in the Pentateuch but understood “thy brother” as referring to other Christians and the “foreigner” to non-Christians, hence Jews were allowed to become money-lenders, with many a sorry consequence, as Jewish history shows.
Rabbinic Law Extends the Ban
The talmudic rabbis held that the terms “usury” and “interest” are synonymous and they extended the biblical laws so as to prohibit any benefit the borrower bestows on the lender, even to greet him if it was not his usual practice to greet him, or even to thank him for the loan.
According to the rabbis [of the Talmud], the prohibition applies to the borrower as well as to the lender, that is, it is not only forbidden to lend on interest but also to borrow on interest. The witnesses to the transaction also offend against the law, as does the scribe who draws up the bond of indebtedness. The laws against usury are treated in detail in chapter 5 of [Babylonian Talmud tractate] Bava Metzi‘a. Here are discussed questions regarding business transactions, some of which may fall under the heading of usury by rabbinic law. The general principle laid down in this connection is “any reward for waiting is forbidden,” meaning, it is forbidden for a lender to be rewarded by the borrower for “waiting” for the return of his money.
The Spirit of the Law and the Letter of the Law
The spirit of the law against usury would not seem to be violated when money is invested in business in our advanced economy, since the money is being used to increase profits and there is no reason why A should invest his money into B’s business as a sleeping partner unless he hopes to gain as B hopes to gain. Nevertheless, the letter of the law was held to be violated even where the loans were of a commercial nature. From the sixteenth century, a device, known as the hetter ‘iska (“dispensation for commerce”), was introduced, in which money invested in a commercial arrangement is treated as “half loan and half deposit.” Even though the principle [that is] presumably behind the original prohibition of usury, that of helping the needy, hardly applies to business investment, many observant Jews still arrange for the hetter ‘iska document to be drawn up when investing money in a business