John McNally ran a loan business. His Jewish neighbor, David Birnbaum, was an investor who maintained a large gmach.
“I’d like to expand my business,” John said to David one day. “I’m looking to add a partner. I know you’re involved in lending. Would you consider joining me?’
“I’m not sure I can,” said David. “There is a problem lending with interest to other Jews.”
“You mean that Jews lend without interest?” exclaimed John.
“Very often we do,” said David.
“Wow,” said John. “I wish we had something like that. Do you provide interest-free loans to non-Jews, too?”
“Interest-free loans are a special brotherly arrangement between Jews,” replied David. “Just as you charge interest when you lend to a Jew, you are expected to pay interest when a Jew lends to you.” [Yoreh De’ah 159:1]
“How do Jewish businesses and banks operate, though?” asked John.
“There is something called a heter iska, which allows for a return on the capital,” said David. “It redefines the loan as an investment.”
“Can you find out whether that’s an option in this case?” asked John.
David called Rabbi Dayan and asked, “Can a non-Jew and Jew form a partnership and lend money to Jews with interest?”
“The Melamed Leho’il [Yoreh De’ah #59] addressed this question,” replied Rabbi Dayan. “He cites the Maharit, who rules that a Jew in partnership with a non-Jew can share interest profits that the non-Jew earns from Jewish clients since the non-Jew operated on his own and the invested money was under his control. The Jew could not restrain him from lending as he wished.
“However, the Melamed Leho’il concludes that if the Jew is an active partner in the business and the money is also under his control, the business may not lend money with interest to Jewish clients.”
“Does the Melamed Leho’il allow for any workarounds?” asked Mr. Birnbaum.
“He provides two options,” answered Rabbi Dayan. “One is that the non-Jew accept full liability for any loan to a Jew. If he does, it is like the non-Jew took money from the partnership and lent the money himself. Conversely, if the partners want to borrow money from a Jew, the non-Jew must take full liability for the loan so that he alone is borrowing.
“The second option is that the partners arrange from the beginning that all loans to Jews come from the share of the non-Jew and all loans to non-Jews come from the share of the Jew. A similar arrangement is mentioned regarding Shabbos – partners can arrange that all profits from Shabbos belong to the non-Jew and from Sunday to the Jew. If the partners didn’t make this arrangement initially, they can dissolve the partnership and reformulate it with this condition. [Orach Chayim 245:1-4]
“The Jewish partner can also arrange a heter iska for the partnership. The terms are also binding on the non-Jewish partner who agreed to it.” [Bris Yehuda, Ikrei Dinim 20:29]