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HOUSES OF WORSHIP

FEBRUARY 17, 2012

When Religion Restricts Lending

Judaism, Chr istianity and Islam have var ious pr ohibitions on char ging inter estand var ious ways ar ound them.

This Saturday, synagogues will chant the Torah portion of Mishpatim, from the book of Exodus, which is the source for the injunction against charging interest to a fellow Jew: "When you lend money to my people, to the poor among you, do not act toward them as a creditor; exact no interest from them." Shana Novick, executive director of the Hebrew Free Loan Society of New York, explains that "Jewish tradition translated this biblical injunction into a powerful imperative: Help your neighbor in need and create lasting impact without embarrassment, through an interest-free loan." In recent years, microfinancewhich is sometimes interest-free and more often nothas shown that small loans can empower people from Bangladesh to New York. To put this concept in a Jewish context, the Hebrew Free Loan Society is turning this Saturday into a kind of marketing campaign for the interest-free version of these loans. The Talmud explains that lending money without interest merits an even greater reward than giving charity. Rashi, one of the foremost biblical commentators of the Middle Ages, explained that loans preserve the debtor's dignity. And interest-free business loans were at the top of Maimonides's ladder of charitable giving, since they foster independence. In modern times, interest-free loan societies were a staple of Eastern European Jewish life. "Gemahs" (a shortened version of Gemilut Hassadim, meaning deeds of loving kindness) were transported to America by Jewish immigrants. New York's society started at Manhattan's Vilna Synagogue in 1892 with working capital of $95. Since then it has lent more than $240 million to more than 870,000 borrowers, with approximately $12 million outstanding today. Such societies were "very much a part of the engine of how Jews were able to succeed in America at a time when a lot of people would not extend credit [to Jews]," says Jonathan Sarna, a professor of American Jewish history at Brandeis University. Today there are 38 nationwide. Of course, the imperative to lend interest-free isn't unique to Jews. Until the mid-1550s, Henry VI II 's parliament outlawed usury, or interest-based money lending, and I slam prohibits what's called "riba" in Arabic. Though Judaism had a blanket prohibition on usury in its modern sensewhat we'd now call predatory lending the prohibition against collecting interest was limited to interactions with fellow Jews. That's because reasonable rates of return aren't immoral according to Jewish law, just out of place when it comes to familyand in Jewish tradition, fellow Jews are considered family. But to facilitate commerce in the modern era and provide Jews with much-needed business capital, the rabbis instituted the "heter iska," a legal instrument that effectively restructures a loan so that it becomes an investment. The structure dates back more than 1,500 years to the Talmudic era, but its modern implementation is generally associated with a 16th-century rabbi, Mendel Avigdors. "As business capital is assumed to be both outside the intent of the prohibition and an indispensable element of the modern economy, it was considered appropriate to find a method to allow it," says Rabbi Daniel Feldman of Yeshiva University. While some authorities historically opposed the heter iska, which is only to be used for business purposes, it is widely accepted as meeting both the letter and the spirit of the law, says Rabbi Feldman. In our difficult economic times, interest-free loans may be more important than ever. In Dallas, the local Hebrew Free Loan Association offers a variety of them, including for life-cycle events, adoptions, home health care and education. And Hebrew free-loan societies boast inordinately low default rates of less than 1%. "There is a sense of religious obligation on both sides," says Mr. Sarna.

"I tell donors that their money will be loaned out, returned and loaned out againit's a never-ending resource for helping people," says Allen Luterman, a past president of Dallas's association. Adds his wife, Susan, president of the International Association of Jewish Free Loans, "I t's a hand up, not a hand out." Ms. Snyder is a jour nalist living in the New Yor k ar ea.

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