I manage a yeshiva. Since our income flow is not steady we often have spare cash that we will need only in another month or two. I have a friend who also manages a Torah institution and he often is short of money to meet his payroll. Since he is very reliable I often lend him money which he pays back by the time I need it. Since my yeshiva’s money is in dollars I lend him dollars which he converts into shekels and uses to cover expenses. When he pays back he can return dollars but most often he only has shekels and so he returns shekels at the middle rate on the day he pays back. We never made a formal agreement requiring him to work this way but this is what he does. I should add that my friend isn’t trying to pay interest or to do me a favor because I did him a favor and lent him money. It is just that this is a convenient way of calculating the amount of shekels to return. This is beneficial for my yeshiva since if I had held onto the dollars and converted them to shekels when I needed them, I would not have gotten the median rate since the black market takes off an agura for each dollar. For example, if I lend him thirty thousand dollars for two weeks my yeshiva gains three hundred shekels, about ninety dollars. Is there any ribbis issue since my yeshiva is benefiting from a loan?
The first thing we need to do is to analyze how Torah law classifies your arrangement. Since the exchange rate that you use is the one that is in effect at the time of repayment, your arrangement has two components. From the time you lent the money until the time of repayment you are lending him dollars with no interest which is perfectly fine. On the day of repayment he may choose to return dollars which again would be fine since you do not gain. Your only issue is in case he repays you in shekels.
When he gives you shekels for your dollars he is effectively selling the dollars he owes you. The reason is that when one repays a loan he must pay back precisely the same money amount that he borrowed (See Chavos Da’as (161, 1) who elaborates on this point) and you could require him to pay back dollars. By giving you a, better than the standard, rate he is paying you more money on the sale than you would have gotten had you not lent him money and would have sold the dollars yourself. Your question is whether this benefit is viewed as interest on your loan.
There are a number of reasons to permit your arrangement.
One reason is that the middle exchange rate is a rate that is used often. It is true that you are benefiting because otherwise you would have gone to the black market and your friend, from a certain perspective, lost because he used the black market and only got the black market rate for the dollars you lent him when he got the loan. Therefore, in a sense you gained and your friend lost. However, if you and your friend would have exchanged with a person who needed dollars (e. g. one who was planning a trip to the U. S.) you would have both exchanged at the middle rate since that is the rate that is used when each party wants the other’s currency. Therefore, since you used a rate that exists and you both could have used it without any loss or gain there is no interest that is inherent in your loan.
Furthermore, actually you and your friend were in the situation where people use the middle exchange rate since your friend really needed to buy dollars in order to pay back his dollar loan. It is only because you allowed him to pay you back in shekels that he did not have to do this. Therefore, your friend really did not lose since it would have cost him more money than the median rate if you would have insisted that he pay you back in dollars. Therefore, the median rate is the fair rate to use and you are in a win-win situation which is not ribbis.
Second, even if we assume, as you did, that your friend is losing, even if there was an obvious benefit for you, many poskim and perhaps all would permit your arrangement. To understand the problem and its solution it is necessary to introduce two laws of ribbis.
The first law (YD 160, 6) is that a borrower may give his lender a modest present after returning the loan, provided that he does not say that he is giving the present in appreciation for the loan. However, there is a second law (YD 160, 4) that a borrower may not include a present to his lender along with his repayment of the loan. The reason is because then it seems clear that the present is being given in appreciation for the loan since it is being given along with repayment of the loan.
This second law is the law that would seem to pose a problem with your arrangement because your friend, at the time when he is returning the loan, is giving you more shekels than you may be entitled to. He is giving you a present along with repayment of his loan. If we ignore our first reason, the black market rate is what you are entitled to and the added shekels are his present.
In order to decide if truly there is a problem it is necessary to study this law carefully. The source for this law is a Gemoro (BM 73B) that recounts how when Ravino, an amora, prepaid for his wine, he received more wine than he should have received according to the market price of wine. The Gemoro says that this behavior does not violate any prohibition of ribbis because the sellers meant to give him a present. (Prepaying is similar to a loan on a rabbinic level.) This is the basis for a ruling of the SA (YD 160, 4) that receiving extra goods is permitted in the context of a sale. However, since many commentaries comment that the only reason Ravino’s behavior was proper is because he bought wine and did not borrow, the SA rules that if one borrows he may not add anything to his repayment.
The commentaries ask that this seems to contradict another ruling of the Tur (CM 232). The basis for the Tur’s ruling is a Gemoro (BM 63B) that rules how a person should act if he unexpectedly received more money than he was supposed to receive. The Gemoro says that if it is reasonable to assume that there was a mistake, the recipient must assume so and return the money – like one is required to return any lost object. However, if it is unreasonable to believe that it was a mistake the recipient may keep the extra money because he can assume it was given to him intentionally as a present. When the Tur (CM 232) records this ruling he writes that this is true even if the money was received in the context of repayment for a loan. The commentaries ask that this contradicts the ruling that one may not give presents together with repayment of a loan.
There are many answers to this question. The Taz (160, 2) and Bach answer that presents received from one’s borrower are prohibited only if the borrower first repays the loan and only immediately afterwards pays the extra amount, since then it is clear that he is paying extra. The Prisho answers that it is only prohibited if the one paying mentions explicitly that he is paying more than he is required to pay. The Shach (160, 4) says that if the money was added on to money that is being paid in repayment of a loan it is prohibited but if the money is repayment for a sale it is permitted. The Machane Efraim (Ribbis 17) differentiates that the prohibition is limited to cases where the borrower really added money because he was loaned money. However, if he adds money for other reasons there is no prohibition.
The Chavos Da’as answers that there is no contradiction since two different issues are involved. The borrower may never add money when repaying his loan, which is the ruling in YD. CM is discussing the situation of the one who received the money and permits holding onto the extra money that he received. Even though the lender received money which constitutes ribbis according to the Rabbonon and the borrower should really not have included it, the lender is not required to return it.
Thus, if we don’t wish to rely on the first reason, your case depends on these answers since you are receiving more money at the time when the loan is being repaid. Since all the money is being given to you at one time and there is no mention that you are being given extra and your friend is not giving you extra because you lent him money, according to the Prisho, Bach, Taz and Machane Efraim there certainly is no prohibition. However, according to the Shach and Chavos Da’as it would seem to be prohibited.
However, as we mentioned at the outset, when one does not return the money he borrowed he is not repaying a loan but buying something. If your friend pays back dollars and adds shekels while returning the dollars, you would have a problem according to the Shach and Chavos Da’as. However, since you are only receiving shekels, your deal is classified as a sale and not a loan and giving a little extra is permitted according to all.
This would be our ruling if the money you lent was your personal money. However, since the money you are lending is your yeshiva’s and the one who is earning money is a yeshiva, there is an additional reason for leniency.
The basis for this leniency is a ruling of the Gemara (BM 70A) that a guardian may invest money that belongs to orphans in a manner that is a rabbinic violation of the laws of interest. The reason (Rashi) is that since the Rabbonim were interested in preserving the capital of orphans they excluded orphans from their prohibitions of ribbis. Similarly, based on the Yerushalmi, the SA (YD 160, 18) rules that a yeshiva may lend its money in a manner that violates rabbinic ordinances since the beneficiary is a yeshiva.
There are a number of reasons that what you are doing certainly does not violate a Torah prohibition. One reason is that in order to constitute a Torah prohibition the payment of ribbis must be included in the terms of the loan agreement (known as ribis ketsutso). Since you did not make an agreement that required your friend to pay you the median rate you certainly did not violate a Torah prohibition of interest. Furthermore, since your friend pays you shekalim for a dollar loan the entire agreement is classified as a sale and the Torah prohibition of ribbis is limited to loans and does not include sales. Since the only potential prohibition is rabbinic, the fact that the beneficiary is a yeshiva is a third reason to permit your arrangement.
In conclusion: You and your friend do not violate any prohibition even if your friend returns shekels to your yeshiva at the median rate. First of all, rabbinic prohibitions of ribbis are waived for a yeshiva and Torah violations are certainly not present. However in fact there are also no rabbinical violations and even if the beneficiary is a private individual, for one, the borrower really isn’t giving more than he should. Also, even if he would be giving more, it is permitted because your situation is a sale.