Interest-Free Loans in Judaism
Jews have a tradition, based in biblical law, of interest-free lending, primarily--but not exclusively--to other Jews.
Reprinted with permission from Essential Judaism: A Complete Guide to Beliefs, Customs, and Rituals, published by Pocket Books.
Thanks in no small part to The Merchant of Venice (although that is another issue for another time), the image of the Jew as unscrupulous moneylender has come down through history--from Shylock demanding his pound of flesh, through Ezra Pound's insidious "usura" cantos, Jewish moneylenders have been shown charging extortionate interest rates.
In fact, the roots of Jewish lending are to be found in tzedakah, in charitable works. Loans were to be given as a form of charity, not for gain. Jews were specifically prohibited from lending to other Jews "on interest." The poor were not to be condemned for an inability to repay a loan. Loans could consist not only of money but also of goods and utensils.
There were ethical considerations underlying those strictures. Such a loan was considered a form of tzedakah, indeed, one of the highest forms because, as Maimonides points out in his Mishneh Torah, "a person who assists the poor man by providing him with…a loan [is] placing him in a situation where he can dispense with other people's aid."
All Jews are obligated to give such free loans, regardless of gender or class. Even those whose livelihood comes from lending are obliged to make free loans to the poor.
Non-Jews & Loans
This said, it should be noted that the halakhah [applicable Jewish law] regarding free loans apply only to loans made to other Jews. It is permissible to make loans with interest to non-Jews. Clearly, this policy is discriminatory. To some extent, it is the result of living in an agrarian society in which one's neighbors (likely to be fellow Jews) would seek out a loan to tide them over until the next harvest; by comparison, the non-Jew might well be an itinerant merchant who needed the loan purely for business reasons.
Moreover, there are several halakhic rulings that mitigate it. Rabbi Isaac Abrabanel, a 15th-century commentator, says that the acceptance of interest from non-Jews does not apply to Christians or Muslims, because their faith systems stem from Judaism originally and therefore share a common ethical basis. Likewise, the medieval commentator Rabbi David Kimchi (known as the Radak) says that a non-Jew who has shown consideration for Jews is to be treated with the same consideration when he borrows.
Clearly, the roots of the discrimination between loans to Jews and to non-Jews are to be found, first, in the often violent tensions between Jew and non-Jew, particularly before the Emancipation resulted in the increased integration of Jews into non-Jewish societies and, second, in the more extreme strictures against idolators and polytheists that are present throughout halakhah dictating relationships with non-Jews.