What specifically is it that defines a loan ( as opposed to an investment / partnership ) and interest ( as opposed to profit ) under Jewish law?
This is what I've come up with:
Regarding an interest bearing loan, it would seem that there are two components which define it:
- A non-negotiable guarantee to return the entire amount of capital which changes hands
- A guaranteed fixed rate of profit
Regarding an investment or partnership:
- There is understood to be a risk that part or all of the capital changing hands might be lost
- The rate of profit is not fixed, it fluctuates according to the actual profit made
I'm trying to understand better how heter iska works and part of that is trying to understand the halachic definition of what constitutes a loan.
According to the above website:
By Torah law, the prohibition of ribbit only applies in a case of "fixed interest" - that is, when the borrower and lender agree at the time of the loan that the principal will be returned with the addition of interest. When the payment of interest is not certain, and it is possible that in the end the borrower will not pay back more than he had borrowed, the interest is only forbidden by rabbinic decree (e.g., karov le-revach ve-rachok me'hefsed).
However, further down the article says:
Rabbi Moshe Feinstein proposed that it is permissible to lend money at interest to corporations, for the assets of corporations are absolutely separate from the assets of the companies' owners and management. According to him, the focus of the prohibition of ribbit lies in the personal lien - the responsibility which the borrower assumes upon himself to repay the loan. Since a corporation is not a person, and the liability for its actions is cast solely on the company's assets, there is no personal lien, and so no prohibition to lend at interest.
Rabbi Shlomo Zalman Auerbach came out sharply against Rabbi Moshe Feinstein's ruling, and the simple sense of the Gemara implies that the prohibition of ribbit is not connected in any way to the personal lien created by the loan. It should be remembered that Halakha makes explicit mention of particular bodies to whom it is permissible to lend at interest (e.g., the community)
But it's not really clear to me specifically what's being said here. Is the idea of the lien identical to the obligation of the borrower to repay in full or is it distinct and in addition to it? And it actually seems like the fact that one may loan to the community at fixed interest would support Rav Feinstein's position that it's the lien / repayment obligation which is part of defining a loan.
So what, specifically, defines a loan?