Please explain the prohibition that a Jew should not charge a Jew interest on a loan and the practicality of this prohibition in a modern world.
The prohibition is based upon three Biblical texts – Exodus 22; 24 (and a similar text in Leviticus 23):
If you lend money to My people, to the poor who are in your power, do not act toward them as a creditor. Take no interest from them.
The third text is Deuteronomy 23; 20
You shall deduct no interest from loans to your countryman … You may deduct interest from loans to foreigners but not from loans to your countrymen.
These texts in combination have led to a strong prohibition in Jewish law against charging interest (ribbit) to Jews – and in some sources even to non-Jews. It is worth noting that the level of interest is not relevant - 2% is prohibited no less than 25%.
A clear intent can be discerned for the laws in the Torah that in a simple agrarian economy interest could be a prohibitive barrier, and that the Israelite community should provide funds to each other without the punishing burden of interest.
As economic structures have grown more sophisticated – from the 2nd century onwards, the prohibition on interest was a severe deterrent to natural and necessary economic activity. The rabbis devised a structure known as “heter iska” which provides for the creation of a largely fictitious “partnership” in which the partner providing funding will benefit to an agreed extent from the profits of the business.
Those who are punctilious in the observance of Jewish Law make use of this structure, which is widely practiced in Israel – and commended by the Committee on Jewish Law and Standards of the Conservative movement.
Nevertheless, members of the Jewish community participate widely in the economic activities of the world, and I would say that in most activities – investment, savings, home purchases, that the conventional practices of the wider society may be followed without harm.
It is worth noting that the traditional Jewish aversion to charging interest to other Jews has led to the widespread establishment of “Free Loan Societies” within the Jewish community. Many Jewish businesses have been started by immigrants who received such loans from their community – and to this day many families in severe difficulty, many Jewish immigrants to the USA are being assisted by such funds. It would be praiseworthy and a great Mitzvah to make donations to such organizations – or to establish such a Society within each community and synagogue. More information can be found on the website of the Hebrew Free Loan Society of New York: www.hfls.org