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Usury

Biblical Law

SOURCES

"If thou lend money to any of My people, even to the poor with thee, thou shalt not be to him as a creditor (nosheh), neither shall ye lay upon him interest" (Ex. 22:24). "And if thy brother be waxen poor and his means fail with thee… Take no interest of him or increase; but fear thy God; that thy brother may live with thee. Thou shalt not give him thy money upon interest, nor give him thy victuals for increase" (Lev. 25:35–37). "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 unto…" (Deut. 23:20–21). The prohibition on taking interest in Exodus and Leviticus seems to be confined to the poor in straits and not to extend to moneylending in the normal course of business, but the deuteronomic prohibition clearly applies to all moneylending, excluding only business dealings with foreigners.

DEFINITION

The biblical term for interest is neshekh (Ex. 22:24; Deut. 23:20), but in the levitical text it occurs alongside tarbit or marbit (25:36–37). In the Jewish Publication Society translation (1962) neshekh is rendered as "advance interest" and tarbit or marbit as "accrued interest" – the one being deducted in advance, the other being added at the time of repayment. This is only one of many interpretations that were made of the terms neshekh and tarbit from the time of the Mishnah (BM 5:1) onward and by no means the best one. One commentator regards neshekh as accumulating interest and tarbit as a fixed sum of interest that never increases (Ramban to Lev. 25:36). The most authoritative view is that of Rava, that there is no difference in meaning between neshekh and tarbit (BM 60b); but while Rava maintains that the Torah used two synonyms in order to make the prohibition of interest a twofold one (ibid.), the better explanation etymologically would be that neshekh, meaning bite, was the term used for the exaction of interest from the point of view of the debtor, and tarbit or marbit, meaning increase, was the term used for the recovery of interest by the creditor (Solomon Luntschitz, Keli Yakar, Be-Ḥukkotai, Lev. 25:36).

The prohibition on interest is not a prohibition on usury in the modern sense of the term, that is, excessive interest, but of all, even minimal, interest. There is no difference in law between various rates of interest, as all interest is prohibited.

LEGAL CHARACTER OF PROHIBITION

It has been said that the prohibition on interest rests on two grounds: firstly, that the prosperous ought to help the indigent, if not by gifts, then at least by free loans; and secondly, that interest (or excessive interest) was seen to lie at the root of social ruin and was therefore to be outlawed in toto. Both these considerations would apply only internally: there could be no obligation to help foreigners, nor was public policy concerned with their well-being. Moreover, moneylending transactions with foreigners were motivated solely by the legitimate desire to make profits, while the internal economy was eminently agrarian and had no money markets of any importance. It follows from the charitable nature of the prohibition on interest that its violation was not regarded as a criminal offense to which any penal sanctions attached, but rather as a moral transgression; in other words, while taking interest would not entail any punishment, granting free loans and refraining from taking interest would lead to God's rewards and blessings (Deut. 23:21 and Ramban thereto). It was only in the prophecies of Ezekiel that usury came to be identified with the gravest of crimes: it is mentioned in the context of larceny, adultery, homicide, and other such "abominations" that are worthy of death (18:11–13). The threat of death for usury was later interpreted as the divine sanction against irrecoverable and illegitimate self-enrichment (BM 61b). "He that augmenteth his substance by interest and increase" is listed among the "evil men" (Prov. 28:8); while "He that putteth not out his money on interest" is among the upright and righteous (Ps. 15:5).

IMPLEMENTATION

The prohibition on taking interest does not appear to have been generally observed in biblical times. The creditor (nosheh), far from giving free loans, is often described as exacting and implacable (cf. I Sam. 22:2; II Kings 4:1; Isa. 50:1; et al.); and the prophet decries those who have "taken interest and increase" and forgotten God (Ezek. 22:12). Nehemiah had to rebuke the noble and the rich for exacting interest, "every one to his brother" (Neh. 5:7); and he had formally and solemnly to adjure them to abstain from levying execution (12–13). From the *Elephantine papyri it appears that among the Jews in Egypt in the fifth century B.C.E. it was a matter of course that interest would be charged on loans: not only did they disregard the biblical injunctions as far as the taking of interest was concerned, but they made no recourse to any legal fictions in order to evade the prohibition (R. Yaron, Mishpat shel Mismekhei Yev (1961), 136).

Talmudic Law

EXTENSION OF PROHIBITION

It is not only the creditor who takes interest who is violating the biblical prohibition, but also the debtor who agrees to pay interest, the guarantor who guarantees the debt that bears interest, the witnesses who attest the creation of an interest-bearing debt, and even the scribe who writes out the deed (BM 5:11; BM 75b; Yad, Malveh 4:2). This is one of the very rare cases in which accessories to the offense are held responsible (see *Penal Law). "Although the creditor and debtor transgress these biblical prohibitions, there is no flogging for it, as the interest must be repaid" (Yad, Malveh 4:3). The Ḥinnukh (no. 74) says further that none of the accessories is flogged "for since even the creditor is not flogged… it would not be right that those who are mere accessories should be liable for flogging."

The most far-reaching extensions of the prohibition relate, however, to the nature of the "interest" prohibited. Interest is no longer only the lending of four dinars for five, or of one bushel of wheat for two (BM 5:1), but is extended to all benefits that smack of interest or might look like it. Thus, the borrower may not let the lender live on his premises without payment of rent or at a reduced rent (BM 5:2), and if he had resided there without paying rent before borrowing the money, he must now be charged rent (BM 64b). The prohibition of lending one bushel of wheat for two was also extended to the lending of one bushel of wheat for one, since it was possible that the value of the wheat might increase between the date of the loan and the date of the return, and such increase in value would amount to prohibited interest (BM 5:9; TJ, BM 5:7); but the rule does not apply where seeds are lent for sowing and not for consumption (BM 5:8), and where the borrower possesses even the smallest quantity of the same species, he may borrow any quantity (BM 75a; Yad, Malveh 10:1–5). Where two men agree to do work for each other in turn, they may agree only on the same kind of work for each, as otherwise the work of one might be more valuable than that of the other and thus amount to prohibited interest (BM 5:10; Yad, Malveh 7:11). Gifts that one man may send to another in view of a forthcoming request for a loan, or in gratitude for a loan granted and returned, fall within the prohibition on interest – as are also "words," conveying to the lender, for instance, any valuable information (BM 5:10), or even greetings, where they would not otherwise have been exchanged (BM 75b; Tosef., BM 6:17). A mortgagee, even if he is in possession of the mortgaged property, is not allowed to take its produce; if he has taken it, he must either return it or set it off against the capital debt (BM 67a–b; Yad, Malveh 6:1–8; see also *Lien; *Pledge).

Interest in the guise of *sale was also prohibited. Fruit and other agricultural produce may not be sold unless and until its market price is established (BM 5:7), for otherwise the purchaser might, by paying in advance a price below the eventual market value, receive interest on his money; such advance purchases amounted in effect to financing the farmers, and were thus in the nature of loans rather than sales. But there is nothing to prevent the farmer from selling below the market value, once that value has been established: this would no longer be a disguised loan but a genuine if ill-advised sale (BM 63b; Yad, Malveh 9:1), subject always to the seller's remedies for *ona'ah (BM 4:4). Sales of products without current market values would be recognized as such, and not be invalidated as disguised loans, only where the goods sold were actually in the hands of the seller at the time of the sale (Tosef., BM 6:2–5), or, where they had to be processed or manufactured, were almost completed at the time of the sale (BM 74a; Yad, Malveh 9:2).

Any payment is prohibited interest that compensates a party to any transaction for money being left, for any length of time, in the hands of the other party, although it should, according to law or custom, have already been paid over (BM 63b). Thus, as rent is legally due only at the end of the period of lease, a discount may be given for rent paid in advance (see *Lease and Hire); but as the purchase price for goods or land sold is payable at the time of the sale, any price increase for later payment would amount to prohibited interest (BM 5:2; BM 65a; Yad, Malveh 8:1).

A further notable extension of the prohibition on interest relates to contracts of *partnership. An arrangement by which one partner finances a business and the other manages it, and losses are borne by the managing partner only while the profits are shared between them is illegal, for it comes within the prohibition on interest (BM 70a; BM 5:6; Yad, Malveh 8:12). Where the financing partner bears or shares the losses, such an arrangement is valid only if the managing partner is being paid a salary for his work instead of, or in addition to, a share in the profits (BM 5:4; Yad, Malveh 5:9).

All these talmudic extensions of the prohibitions on interest are known as avak ribbit, i.e., the dust of interest, as distinguished from ribbit keẓuẓah, i.e., interest proper in an amount or at a rate agreed upon between lender and borrower (BM 61b, 67a, et al.). The difference in law between avak ribbit and ribbit keẓuẓah is that the latter, if it has been paid by the borrower to the lender, is recoverable from the lender, while the former, once paid, is not recoverable, though a contract tainted with the dust of interest will not be enforced (BM 61b; Yad, Malveh 4:6; Sh. Ar., YD 161:1–2; see also *Contract).

EVASION OF PROHIBITION

It has been said that the evasion of the prohibitions on interest reflects the conflict between law and life (Globus, see bibl., p. 39). It is remarkable how the talmudic jurists extended the prohibition on interest so as to cover, and invalidate, transactions far removed from the loans to which the biblical prohibition had attached, and at the same time sought ways and means to validate transactions clearly or conceivably falling within that prohibition. This phenomenon can only be explained by the change of economic conditions: it was in the amoraic period in Babylonia that the prohibitory laws against interest proved to be no longer compatible with the economic needs of the community; and ever since the necessity of finding legal subterfuges to evade those laws has persisted. The prohibition of price increase for payment that is made after a time lapse was practically abolished by the provision that any price may be agreed upon and recovered so long as the increase involved is not expressly but only tacitly stipulated (BM 65a; YD 173:1). The mishnaic rule that a managing partner must be paid a salary in order to validate the partnership agreement was set at nought in practice by the provision that such a salary need be nominal only (BM 68b). Profit-sharing partnerships were validated by regarding the investment of the financing partner as half loan and half deposit. While the borrower is responsible for the loan, the bailee is not responsible for the loss of the deposit; thus, the financing partner (as bailor) will also bear his share in the losses, and the partnership is legal (BM 104b). Even where the financing partner's share in the profits is redeemed in advance by a down payment, the agreement is upheld, provided that the business could reasonably be expected to be profitable (TJ, BM 5:8); and, later, deeds were formulated in which a pre-estimate of the expected profits was stipulated in advance as a fixed sum (BM 68a).

A farmer who had received a loan was allowed to make a formal conveyance of his lands (or part of them) to his creditor and still remain on his lands as his creditor's tenant; the creditor would be entitled to the produce of the land, not as interest on the loan but as income from his property (BM 68a). One jurist even held that it was permissible to let money on hire, like chattels, against payment of rent, as distinguished from giving a loan against payment of interest (BM 69b). A vendor may sell goods on credit at a price of 100 units payable at a future date, and immediately repurchase the goods at the price of 90 units payable cash down: each of the two contracts of sale would be valid (BM 62b).

Another form of evasion was to lend money on interest to a non-Jew, in order that the non-Jew might relend the money to the intended Jewish debtor; both lending transactions are valid (BM 61b).

Some of these forms of evasion, though practiced in talmudic times, have not become the *halakhah (BM 68a per Rava; Yad, Malveh 5:8; 5:16; 6:4–5); others, though recognized as legally valid and feasible, were deprecated as reprehensible and forbidden (BM 61b–62b; Yad, Malveh 5:15) because of the stratagem involved in the device (ha'aramah).

SANCTIONS

Originally, courts appear to have been empowered to fine the creditor for taking interest by refraining from enforcing even his claim for the repayment of the capital (Tosef., BM 5:22), but the rule evolved that taking interest did not affect the creditor's enforceable right to have his capital debt repaid (BM 72a; Yad, Malveh 4:6). Where a bill, however, includes both capital and interest without differentiating between them, the bill is not enforceable (YD 161:11; Sh. Ar., ḤM 52:1), and "whoever finds a bill which includes interest, shall tear it up" (Tosef., BM 5:23; see also *Contract). Moneylenders who take interest are disqualified as *witnesses and are not administered oaths (Sanh. 3:3), and even the borrower who pays interest is disqualified (Sanh. 25a). In their moral turpitude, moneylenders who take interest are likened to apostates who deny God (Tosef., BM 6:17) and to shedders of blood (BM 61b); and they have no share in the world to come (Mekh. Sb-Y 22:24). They are doomed to lose all their property and go bankrupt (BM 71a; Sh. Ar., YD 160:2).

LEGALITY OF INTEREST

While biblical law allowed the taking of interest from foreigners, excluding alien residents (Lev. 25:35), talmudic law extended the exemption: "One may borrow from them [foreigners] and lend them on interest; similarly in the case of an alien resident" (BM 5:6, 70b–71a). However lawful interest transactions with foreigners were, they were looked upon with disapproval: some jurists held that they were permissible only when no other means of subsistence was available (BM 70b); others would allow them only to persons learned in the law, as the uneducated might fall into the error of believing that interest is permissible in general (BM 71a). The psalmist's praise of the man who would not lend his money on interest (Ps. 15:5) was interpreted to apply to the man who would not take interest from a foreigner (Mak. 24a).

Post-Talmudic Law

TRANSACTIONS AMONG JEWS

The talmudic evasions of the prohibition against interest served as precedents for the legalization of transactions involving interest. Thus it was deduced from the evasions reported in the Talmud that it would be permissible for a lender to lend 100 units to a businessman for him to use in his business; when it had increased to 200, the lender would be entitled to the 200, provided that he had paid the borrower some salary in consideration of his work (Piskei ha-Rosh BM 5:23; Mordekhai BM 319). Rashi is reported to have ruled that you may send your friend to take a loan on interest from another for you, or you may send your friend to give your money on interest to another; for interest is prohibited only as between lender and borrower, but not as between their respective agents. The general rule that a man's agent is like himself (see *Agency) would not apply here, as the taking of interest is a criminal offense, and in criminal matters no man can be made responsible for the deed of another (see *Penal Law; Mordekhai BM 338).

In time, a standard form of legalization of interest was established, known as hetter iskah, meaning the permission to form a partnership. A deed, known as shetar iskah, was drawn up and attested by two witnesses, stipulating that the lender would supply a certain sum of money to the borrower for a joint venture; the borrower alone would manage the business and he would guarantee the lender's investment against all loss; he would also guarantee to the lender a fixed amount of minimum profit. The deed would also contain a stipulation that the borrower would be paid a nominal sum as a salary, as well as an agreement on the part of the lender to share the losses. In order to render this loss-sharing agreement nugatory, provision would normally be made for such loss to be proved by particular, mostly unobtainable, evidence (Naḥalat Shivah, no. 40; cf. Terumat ha-Deshen, Resp. no. 302). The amount of the capital loan plus the guaranteed minimum profit would be recoverable on the deed at the stipulated time it matured.

In the course of the centuries this form of legalizing interest has become so well established that today all interest transactions are freely carried out, even in compliance with Jewish law, by simply adding to the note or contract concerned the words al-pi hetter iskah. The prohibition on interest has lost all practical significance in business transactions, and is now relegated to the realm of friendly and charitable loans where, indeed, it had originated.

TRANSACTIONS WITH NON-JEWS

In 1179 the Church decreed that the taking of interest was forbidden by Scripture as well as by the laws of nature, and that all Christian usurers would be liable to excommunication. As canon law did not apply to Jews, this decree did not prevent them from lending money on interest, and moneylending soon became a typically Jewish business. The Jews were practically forced into it by the severe restrictions placed upon them in the pursuit of any other trade or profession in most countries of Europe. From the point of view of Jewish law, the taking of interest from non-Jews was permitted; and the talmudic restriction that it should not be done unless there were no other means of subsistence was duly held to be complied with: "If we nowadays allow interest to be taken from non-Jews, it is because there is no end to the yoke and the burden king and ministers impose on us, and everything we take is the minimum for our subsistence, and anyhow we are condemned to live in the midst of the nations and cannot earn our living in any other manner except by money dealings with them; therefore the taking of interest is not to be prohibited" (Tos. to BM 70b S.V. tashikh). With the renewed change in circumstances, the prohibition on taking interest would apply to Jews and non-Jews alike (YD 159:1).

For nonlegal aspects see also *Moneylending.

BIBLIOGRAPHY:

J. Marcuse, Das biblisch-talmudische Zinsenrecht (1895); E. Cohn, in: Zeitschrift fuer vergleichende Rechtswissenschaft, 18 (1905), 37–72; J. Hejcl, Das alttestamentliche Zinsverbot im Lichte der ethnologischen Jurisprudenz sowie des altorientalischen Zinswesens (1907); H.L. Strack, in: Realencyklopaedie fuer protestantische Theologie und Kirche, 21 (19083), 518–21; I.S. Zuri, Mishpat ha-Talmud, 5 (1921), 63f., 134–9; Gulak, Yesodei, 2 (1922), 72, 107, 172–6; I. Bernfeld, Das Zinsverbot bei den Juden nach talmudisch-rabbinischen Recht (1924); S. Rosenbaum, in: Ha-Mishpat ha-Ivri, 2 (1926), 27, 191–4; E.L. Globus, in: Ha-Mishpat, 2 (1927), 23–43; E.S. Rappaport, in: Zeitschrift fuer vergleichende Rechtswissenschaft, 47 (1932/33), 256–378; A. Gulak, Toledot ha-Mishpat be-Yisrael bi-Tekufat ha-Talmud, 1 (Ha-Ḥiyyuv ve-Shi'budav, 1939), 45, 117f., 145; Herzog, Instit, 2 (1939), 135; S.J. Rabinowitz, in: Yavneh, 3 (1949), 165–74; R. Katzenelboigen, ibid., 175–9; B.N. Nelson, The Idea of Usury, from Tribal Brotherhood to Universal Otherhood (1949); ET, 1 (19513), 46f.; 2 (1949), 51; 4 (1952), 111; 7 (1956), 394; 9 (1959), 714–22; 10 (1961), 102f., 108; J. Rosenthal, in: Talpioth, 5 (1951/52), 475–92; 6 (1952/53), 130–52; T. Be'eri, in: Ha-Torah ve-ha-Medinah, 5–6 (1952/54), 296–301; J. Segal, ibid., 9–10 (1957/59), 451–90; E. Neufeld, in: JQR, 44 (1953/54), 194–204; idem, in: HUCA, 26 (1955), 355–412; M. Elon, in: Ḥok u-Mishpat, 1 (1955), issue 22, pp. 6–8; S. Stein, in: JSS, 1 (1956), 141–64; B. Rabinowitz-Te'omim, in: Ha-Torah ve-ha-Medinah, 11–13 (1959–62), 16–45; J.T. Noonan, The Scholastic Analysis of Usury (1957); N.N. Lemberger, in: No'am, 2 (1958/59), 33–37; J. Wassermann, ibid., 3 (1959/60), 195–203; M.N. Lemberger, ibid., 4 (1960/61), 251–7; Z. Domb, ibid., 258–65; Elon, Mafteʾaḥ, 302–7; B. Cohen, Jewish and Roman Law, 2 (1966), 433–56, 784f.; S.E. Loewenstamm, in: EM, 5 (1968), 929f. ADD. BIBLIOGRAPHY: M. Elon, Ha-Mishpat ha-Ivri (1988), 1:94, 97, 114, 197, 489, 575, 577, 642, 654, 660, 730, 738, 764, 787–89; 2:993, 1031, 1051, 1053, 1069, 1073, 1231, 1247; 3:1443; idem, Jewish Law (1994), 1:105, 109, 128, 222; 2:596, 708, 711, 795, 809, 816, 901, 910, 941, 966–68; 3:1201, 1246, 1269, 1272, 1294, 1475; 4:1716; M. Elon and B. Lifshitz, Mafte'aḥ ha-She'elot ve-ha-Teshuvot shel Ḥakhmei Sefarad u-Ẓefon Afrikah (legal digest) (1986), 2:448–59; B. Lifshitz and E. Shochetman, Mafte'aḥ ha-She'elot ve-ha-Teshuvot shel Ḥakhmei Ashkenaz, Ẓarefat ve-Italyah (legal digest) (1997); B-Z. Eliash: "Ideological Roots of the Halakhah: A Chapter in the Laws of Interest," in: Shenaton ha-Mishpat ha-Ivri, 5 (1977), 7; A. Hacohen, "Banka'ut lelo Ribit ve-Hetter Iskah bi-Medinah Yehudit ve-Demokratit, Halakhah ve-Eein Morin Ken?" in: Sha'arei Mishpat, 2 (1999) 77; N. Dreyfus, "Dinei Ribbit ve-Hetter Iskah be-Re'i ha-Kalkalah ha-Modernit," in: Teḥumin, 14 (1992), 207; Z.Y. Ben-Yaakov, "Hetter IskahSetimat Kol ha-Peraẓot," in: Teḥumin, 23 (2003), 373.