Question
Since I am making a simcha and am short of money, I approached an English friend to borrow money for one year. I needed shekels and my friend keeps his money in sterling, so my friend said he will ask the bank to convert five thousand pounds sterling into shekels and will give me those shekels. He told me to go with the money to a certain gemach and to give them the shekels, and the gemach will obligate itself to pay him back five thousand sterling when I pay back the shekels to the gemach in a year. My friend will get back more money than he lent me because the shekels that he gave me were worth less than five thousand pounds. The reason they were worth less is because money was lost in the conversion of sterling to shekels plus the bank charged a transaction fee as it does for every transaction that is done in the lender’s account. Is there a problem of interest?
Answer
Before we can answer your question, we must analyze what is happening from a halachic perspective.
Even though you approached your friend for a loan he did not lend you money directly. If he had lent you money, the gemach would not be obligated to pay him anything. The gemach can give its word that it will do as you described. However, its word, in your situation, does not create an obligation. (A word only creates an obligation if one says that he will give something to the beis hamikdosh or perhaps to tsedoko.) In that case, the gemach could change its mind and not accept your shekalim when you want to repay, and your friend would just be entitled to receive your shekalim and not recoup the sterling that he lost in order to extend the loan to you. Clearly your friend did not want this to be the case.
Therefore, what your friend really did was to give you his money and make you his messenger to take his money to the gemach. The gemach then, after it received money from him, obligated itself to repay the amount of sterling that your friend withdrew from his account. The gemach, based on his recommendation, then extended a loan to you. Two legally separate transactions took place: one between your friend and the gemach in which your friend gave the gemach the proceeds of the bank transaction of converting the sterling to shekels with the expectation to get back sterling, and one between the gemach and you in which the gemach lent you the amount in shekels it had received from your friend and expects to receive that amount in shekels in payment. In order to determine if there is a ribbis violation we have to examine each transaction.
The transaction between you and the gemach is a simple loan that involves no interest since you obligated yourself to return to the gemach exactly the amount in shekalim that the gemach gave you.
The obligation that seems to be a major problem of ribbis is the transaction between your friend and the gemach since, as you described it, the gemach obligated itself to pay your friend more than the amount of money that your friend gave it in return for using your friend’s money for a year.
There are actually two ways that one can look at the transaction that took place between your friend and the gemach. Either one may be used, and neither of them poses a problem of ribbis.
The first approach is to view the transaction as a loan of sterling from your friend to the gemach which the gemach will repay in sterling. At first glance it seems that this is forbidden by the Torah as ribbis ketsutso, since the gemach obligated itself to give your friend in a year’s time more sterling than it received from him. In order to determine whether there is an issue of ribbis it is important to introduce a principle.
The Mishna (BB 167B) rules that one who borrows money must pay the expenses associated with writing the loan document. The Gemara explains that the reason the borrower must pay is because he is the one who benefits from the loan. Even though it is lender (and not the borrower) who benefits from the loan document since it ensures that the loan will be repaid, nevertheless, since it is the borrower who benefits from the loan and because of the loan the lender needs the loan document, the borrower must pay all of the associated expenses.
The Bris Yehuda (9, A) deduces from this that there is no prohibition of ribbis if a lender requires his borrower to reimburse him for all the losses and expenses that he incurred in order to give the loan to the borrower. The reason is that, as we saw in the Gemara, the Torah only forbade a lender to earn a profit from lending money. It did not require a lender to lose money in order to lend money.
In your situation, if we follow this approach, the money your friend lent the gemach is considered to have been in sterling. The reason your friend converted his sterling into shekels was to lend the gemach shekels in order for it to lend you the shekalim that you needed. Converting sterling to shekels incurred expenses. Since the gemach caused your friend this expense in order to lend you money it is permitted for your friend to charge the gemach for the expenses he incurred as a result of the loan that he granted to the gemach.
Since the extra amount that your friend will get back from the gemach is just his expenses from extending a sterling loan to the gemach which needed shekalim, there is no prohibition of ribbis.
It is very important to note (See for example Toras Haribbis 5, 14) that a lender may only charge his borrower for his expenses and not for loss of profit. For example, if a lender takes money out of an interest-bearing account in order to extend a loan, he may not charge his borrower for the interest that he would have earned if he had left the money in his account since that is profit and not an expense.
Even though the above approach is permitted, it is worth mentioning that there is a second approach to your transaction. The second approach is that your friend did not lend the sterling that he had in his account to the gemach, but that he used the shekels that you brought to the gemach to buy sterling through the gemach for delivery in a year’s time. The reason the transaction is a sale and not a loan is because (See Chavos Da’as 161, 1) whenever one receives a different type of item than the one that he gave, the transaction is classified as a sale and not a loan. Since your friend gave the gemach shekels and will receive pounds, the transaction is a sale. Furthermore, since shekels are the currency in Israel your friend bought sterling from the gemach since the sterling is considered a commodity relative to the shekels (and we do not consider it as selling shekels to the gemach for the sterling). (The source is the Gemara, BM 45A.)
If we construe your transaction in this manner, since the transaction between your friend and the gemach is a purchase and not a loan there is no issue of Torah prohibited ribbis since the Torah only prohibited loans that profit the lender (and not sales). However, there is an issue of rabbinic ribbis since your friend is paying a discounted price for the sterling because he is paying a year in advance and the rabbis prohibited such deals since the reason the seller gives a discount is because he has use of his customer’s money for a year.
However, in general, if, at the time that the seller receives money, the seller owns the object that he is contracting to give his customer in a year’s time, the transaction is permitted (YD 173, 7) even if the customer is paying a discounted price. Therefore, if the gemach owned five thousand pounds at the time that your friend brought it shekalim, the arrangement is permitted even if we view the deal between your friend and the gemach as a forward sale.
We should note that even though we learned that both approaches do not violate the prohibition of ribbis, there are differences between these two approaches in addition to the requirement that the gemach own five thousand sterling at the time of the transaction according to the second approach.
The Chavos Da’as (161, 1) says that a difference is whether one is required to pay in the exact manner that was agreed upon. If we consider the transaction as a loan in sterling, the gemach must return to your friend sterling if it has sterling at the time it must pay. However, if the gemach accepted your shekels as payment for future delivery of sterling the gemach is allowed to give your friend the value of the sterling in shekels at the time of payment.
Another difference is if shemittoh passed and your friend did not make a pruzbul. If your friend lent sterling to the gemach and did not make a pruzbul he would not be allowed to collect his loan since at the end of the shemittoh year all loans are cancelled. However, if he bought sterling, shemittoh does not affect him since shemittoh does not affect sales.
In conclusion: The entire arrangement that your friend made is permitted.
