Rabbi Meir Orlean
John McNally ran a loan business. His Jewish neighbor, David Birnbaum, was an investor who also maintained a large gemach (interest-free loan fund).
"I'd like to expand my business," John said to David. "I'm looking to add a partner. I know you're involved in lending. Would you consider joining me?'
"I'm not sure that I can," said David. "There is a problem lending with interest to other Jews."
"I have no problem, though," said John. "If we lend to Jews you can 'blame it' on me."
"It doesn't work that way!" David laughed. "If we're partners, when the partnership lends, I've got a share in the prohibited loan."
"You mean that Jews really lend without any interest?!" exclaimed John.
"Very often we do on a personal level," said David. "In most Jewish communities there is a charity fund for providing interest-free loans, like the one I operate."
"That's very thoughtful," said John. "I wish we had something like that, but I've never heard of anyone lending on a significant scale without interest. Do you provide interest-free loans also to non-Jews?"
"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" (Y.D. 159:1).
"How do businesses operate, though?" asked John. "There are Jewish banks and loan businesses, even owned by observant Jews."
"There is something called heter iska, which enables a return on the capital," said David. "It redefines the loan as an investment. If it becomes relevant, I can explain it in further detail."
"Can you find out whether there is an option?" asked John. "Is there a Rabbi you can ask?"
"There is," replied David. "I'll consult with him."
David called Rabbi Dayan and asked: "Can a non-Jew and a Jew who have a partnership lend to Jews with interest? Does a heter iska work?"
"Melamed L'hoil (Y.D. #59, by Rabbi D.Z. Hoffman, zt"l, 1843-1921) addressed this question," replied Rabbi Dayan. "He cites from responsa of Maharit that if a Jew invests money with a non-Jew as a silent partner, he may share the interest profit that the non-Jew earns, even from Jewish clients. This is because the non-Jew operates on his own and the invested money is under his control, so that the Jew cannot restrain him from lending as he wishes.
However, Melamed L'hoil concludes that if the Jew is an active partner in the business and the money is also under his control, it is not permissible for them to lend with interest to Jewish clients."
"Does he provide any solution?" asked Mr. Birnbaum.
"Melamed L'hoil provides two options," answered Rabbi Dayan. "One is that the non-Jew accept full liability to the partnership for the loan to a Jew. In this case, it is as if the non-Jew took money from the partnership and he alone lent to the Jew. Conversely, if the partners want to borrow money from a Jew, the non-Jew must take full liability to the Jewish lender, so that he alone is borrowing.
“The second option is for the partners to arrange from the beginning that all loans to Jews should be from the share of the non-Jew, and loans to non-Jews from the share of the Jew. A similar arrangement is mentioned regarding Shabbos, whereby partners can arrange that all profits from Shabbos belong to the non-Jew, and from Sunday belong to the Jew. If the partners didn't do so initially, they can dissolve the partnership and reformulate it as such (O.C. 245:1-4).
“In addition, if the Jewish partner arranged a heter iska for the partnership, it is permissible. The terms are binding also on the non-Jewish partner who agreed to it" (Bris Yehuda, Ikrei Dinim 20:).”
Ruling: The partnership may not lend to Jews with interest, unless the non-Jew undertakes full liability for those loans, the initial partnership was formulated so that loans to Jews are from the non-Jew, or there is a heter iska.