Q: How does a “heter iska” operate?

A: (Part Two, continued from last week)

3. To facilitate the anticipated return, a stipulation is made that the “manager” (i.e. borrower) will not be believed that the “anticipated profit” of the financier was not realized unless he takes a severe oath. He is given the option of paying the amount of “anticipated profit” (i.e. interest) for relieving him of his responsibility to take this oath.

4. If only half of the capital remains the investor’s and half is a loan, a provision is included to provide a nominal salary, often a dollar, to the “active partner” (i.e. borrower) for his efforts in managing the investment venture. Otherwise, his free service in managing the financier’s half would be a form of interest on the half that is a loan.

Ideally, this agreement should be attached to, or incorporated though reference, in the loan document.

(For further elaboration, see The Laws of Ribbis, Rabbi Reisman, 22:24-29; 23:1-5.)