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I understand that a heter iska is basically a method of restructuring a loan as an investment, done in such a way that the lender/investor is more-or-less guaranteed to get his capital back, plus a share of the profits.

So it's relatively easy to see how this works if the borrower is going to be using the money to start (or expand) a business or the like. How, though, does it work for other types of transactions - whether secured loans such as home mortgages or car loans, or unsecured ones such as credit cards? There too, the lender wants some return on his investment. (Or maybe indeed it can't be made to work in a halachically acceptable manner, and then indeed a Jew would be forbidden to take out one of these kinds of loans from a Jewish-owned bank.)

(The question is really more about how things are done in Israel. I assume it's a non-issue in chutz la'aretz, where most of the financial institutions are owned and managed by non-Jews and there's therefore no problem with outright ribbis.)

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Not sure what you're asking ("How... does it work"). Do you mean mechanically, what is the contract that the parties are entering into? Or do you mean halachically, why is it permitted? –  msh210 Nov 23 '11 at 22:20
    
@msh: thanks - I've updated the question to (hopefully) clarify what I'm asking. –  Alex Nov 24 '11 at 22:16
    
Closely related: judaism.stackexchange.com/q/48311 –  msh210 Nov 12 at 18:38

2 Answers 2

According to Rabbis Yonah Reiss and Ezra Schwartz (and the latter was reviewing a class given by Rabbi Ben-Haim), heter iska can be used for non-business loans. The reason is that the borrower has other assets, which he has decided not to sell off in order to fund whatever he is using this money for. As such, the retained assets are the investment that is a joint venture, and it can be on that investment that the iska applies.

I'd point out that in the case of a mortgage, while most don't see it as a business venture, there is a reasonable possibility that the asset will increase in value, and as such it is itself an investment.

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According to many poskim, a heter iska does not work in such situations. See The Laws of Ribbis, p.395.

There are also many banks in America with some Jewish owners or investors, but that raises a separate issue of partially Jewish-owned corporations.

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