Financial Tools and Interest

From Halachipedia
This is the approved revision of this page, as well as being the most recent.
Jump to navigation Jump to search

Stocks

  1. It is permitted to buy stocks and it isn't considered ribbit since it is an investment.[1]
  2. Short selling is a violation of borrowing commodities with interest. This type of transaction between two Jews is forbidden since the leniencies of borrowing commodities, namely, having a fixed market price that endures for a long time or having a position in that the stock one is short selling, are inapplicable.[2] For a Jewish marketplace this is a serious issue because either way there is an interest charge for borrowing the stocks for the time. Therefore, these issues need to be solved with a heter iska.[3]
  3. Buying stocks on margin is forbidden if the brokerage is Jewish since it is lending to the investor money to be able to buy the shares and charging them interest for that loan. This is biblical interest, but it can be permitted with a heter iska.[4] A regular heter iska doesn't work for this case.[5]
  4. Buying a future contract of stocks doesn't involve interest.[6]
  5. If a person leaves money in a Jewish investment account and it accrues interest leaving money there is forbidden since that would be biblical interest. However, this transaction can be permitted with a heter iska.[7] Some poskim would permit collecting interest if the brokerage firm is incorporated.[8]
  6. Buying and selling options is permitted.[9]
  7. In contrast to an option it is forbidden to say that in a certain eventuality the borrower needs to return the capital with interest and if it doesn't happen he doesn't need to pay at all. This is considered by some to be biblical interest while others hold it is rabbinic interest.[10] This isn't considered a sale of an insurance policy, for which the payment is made because of risk and not interest, while this is considered a loan.[11]

Merchant Cash Advance

  1. It is forbidden to be a broker for Merchant Cash Advance transactions since halacha deems them as a loan with interest. A heter iska can be used to solve the issue.[12]

Annuity

  1. It is forbidden to give a gift to someone on condition that they give you a small gift each year (or regularly) for an extended period of time such that the accumulation of the gifts is more than the original gift. Essentially an annuity using gifts is forbidden.[13]

Selling a Loan

  1. If someone is owed money he can sell it to someone else at a discount. He can even sell the loan to his borrower. It is forbidden for the lender selling the debt to become a guarantor for the loan or take upon himself responsibility to pay for the loan if it goes unpaid by the borrower. However, it is permitted for the lender to take upon himself the responsibility to pay for the loan if it is found to be invalid or is collected by other creditors of the lender.[14]
  2. For example, if someone owes a large loan to a communal institution and the institution needs money they can sell that loan to someone else for less than the full value.[15]
  3. If someone owes a creditor money and hires someone else to pay the debt for him the borrower must pay the agent the amount due or money. He can't pay him less because the agent doesn't need to pay immediately. Doing so is taking interest. If one uses a language such as hiring an agent to release or save him from such a creditor then it is permitted since it is possible for the agent to appease the creditor with less than the amount due.[16]
  4. The loan must be sold in a halachically binding manner with a kinyan. That is for an oral loan it can be sold with Maamid Shloshtan, in the presence of the buyer, seller, and borrower the transaction is declared to have taken place, and for a written loan it can be sold with writing another document and transferring that document to the buyer. After the fact if they didn't do a binding kinyan some say that it is nonetheless permitted.[17]

Sources

  1. Malveh Hashem 2:13:29 p. 169 writes that buying a stock is an investment in the company and has risk. Therefore, there is no question of interest. Marechet Hashulchan Ribbit p. 417, Mishna Halachot 5:116, and Mishpatei Ribbit v. 2 p. 356 citing Brit Yehuda 2:42 agree.
  2. Rav Aharon Levine (Tradition Spring 2010 pp. 67-71) explains that short selling involves borrowing a commodity which is repaid with that commodity and not merely a cash loan. The commodities in this case are the stocks being sold short. Since the marketplace price is in flux constantly that doesn't permit the seah b'seah transaction. Additionally, the fact that selling outside the box is illegal prevents a person from shorting a position he already owns stock in. Therefore, it isn't possible for someone to have the stocks that he is borrowing while doing a short sell.
  3. Torat Ribbit 17:33 agrees that short selling is considered seah bseah and therefore forbidden. Additionally, he adds that the seller can’t return the dividends. If the stock price drops after the dividend its price reflects that then it is a shutfut and the seller who borrowed the stocks is entitled to them and returning them would be interest. A specific heter iska can be used. toraland.org.il agrees.
  4. Laws of Interest 1:25, Mishnat Ribbit p. 62, Mishna Halachot 5:116
  5. Mishnat Ribbit p. 62
  6. Ribbit Btachnit Chischon Lkol Yeled p. 33 writes that there's no ribbit with future contracts since there is no sale of the stocks until the settlement date at which point the money is paid and the stocks or the equivalent are exchanged. Therefore, he argues that it isn't similar to pesika (buying commodities at a future date). Even though there is a down payment made it is merely a security deposit and not a loan. He cites this from the Mishpat Shalom CM 209.
  7. Laws of Interest 1:24, Mishnat Ribbit p. 62
  8. Laws of Interest 1:24 based on Rav Moshe (Igrot Moshe 2:63)
  9. Torat Ribbit 17:36 permits buying and selling options since they can go up or down. If you buy from the open market certainly it is a sale and even if you do it with your broker it is still like a sale and not like an advanced cash payment to get a cheaper deal later. Takanat Haribit p. 47 also permits and thinks it isn't asmachta since it is legally binding. Seder Haribit v. 1 p. 289 writes that buying options is permitted since it is a sale. It isn't like pesika al peirot since you don't necessarily get the fruit you're just buying the right to get them. This is explained by Rabbi Sultan (Investing in Bonds, Stocks, Short Selling, Buying Futures, Options). See Yeshurun v. 33 p. 625-6 who discusses whether options is an issue of ribbit and considers that perhaps it isn't considered a loan at all but a sale. See there at length.
    • The Shaarei Bracha 166:1 cites the Maharam Chaviv 23 who permits buying from someone the following option: if an investment doubles by a certain date then the provider of this option pays nothing, and if the investment doesn't double then the provider needs to pay the difference between the amount of the investment and double the original investment. In essence this is buying a put option and it is permitted. His proof is Shulchan Aruch Y.D. 173:19 who allows buying insurance.
  10. Rivash 308 holds it is rabbinic interest, while Radvaz 1:497 considers it biblical interest. Shulchan Aruch Y.D. 173:18 quotes the Rivash.
  11. Chelkat Binyamin 173:201
  12. dinonline.org points out that even Rav Moshe’s leniency of corporations wouldn’t apply since there is usually a personal guarantee or COJ attached to the contract. Therefore without a heter iska it is forbidden to be a broker for these transactions.
  13. Pitchei Teshuva 160:5 writes that the Teshuva Mahava 1:54-58 has a series of teshuvot about whether it is forbidden to give a gift in order to get back a greater gift broken up over time. Originally he held it was only rabbinic ribbit but finally concluded it was ribbit. Sheilat Yavetz also writes that such a setup is ribbit. However, the Knesset Hagedola holds that it is permitted.
  14. Shulchan Aruch Y.D. 173:4, Brit Yehuda 15:1-3
  15. Shulchan Aruch Y.D. 173:5
  16. Rama Y.D. 173:4
  17. Brit Yehuda 15:2