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The biblical Hebrew terms for interest are neshekh (Hebrew: נשך), literally meaning a bite, and marbit or tarbit (מרבית/תרבית), which refers to the lender's profit. Neshekh refers to interest deducted in advance from the loaned money given to the borrower; the words marbit and tarbit refer to interest added to the amount that the borrower must repay. The words marbit and tarbit, for the form of interest most familiar in modern times, became ribbit (ריבית) in modern Hebrew. The latter word is similar to the Arabic word riba used in the Quran.
(ג) אֵין אַלְמָנָה נִפְרַעַת מִנִּכְסֵי יְתוֹמִים אֶלָּא בִשְׁבוּעָה. נִמְנְעוּ מִלְּהַשְׁבִּיעָהּ, הִתְקִין רַבָּן גַּמְלִיאֵל הַזָּקֵן שֶׁתְּהֵא נוֹדֶרֶת לַיְתוֹמִים כָּל מַה שֶּׁיִּרְצוּ, וְגוֹבָה כְתֻבָּתָהּ. הָעֵדִים חוֹתְמִין עַל הַגֵּט, מִפְּנֵי תִקּוּן הָעוֹלָם. הִלֵּל הִתְקִין פְּרוֹזְבּוּל מִפְּנֵּי תִקּוּן הָעוֹלָם:
(3) A widow can collect payment of her marriage contract from the property of orphans only by means of an oath that she did not receive any part of the payment of the marriage contract during her husband’s lifetime. The mishna relates: The courts refrained from administering an oath to her, leaving the widow unable to collect payment of her marriage contract. Rabban Gamliel the Elder instituted that she should take, for the benefit of the orphans, any vow that the orphans wished to administer to her, e.g., that all produce will become prohibited to her if she received any payment of her marriage contract, and after stating this vow, she collects payment of her marriage contract. The mishna lists additional ordinances that were instituted for the betterment of the world: The witnesses sign their names on the bill of divorce, even though the bill of divorce is valid without their signatures, for the betterment of the world, as the Gemara will explain. And Hillel instituted a document that prevents the Sabbatical Year from abrogating an outstanding debt [prosbol] for the betterment of the world, as the Gemara will explain.
What is the origin of this word? There is a discussion about this in the gemara (Gittin 36b-37a):
מאי פרוסבול אמר רב חסדא פרוס בולי ובוטי בולי אלו עשירים דכתיב (ויקרא כו) ושברתי את גאון עוזכם ותני רב יוסף אלו בולאות שביהודה בוטי אלו העניים דכתיב (דברים טו) העבט תעביטנו אמר ליה רבא ללעוזא מאי פרוסבול א"ל פורסא דמילתא
"What is (the meaning of ) prosbul? R. Hisda says: Pros (an enactment of) buli and buti. Buli means the rich, as it is written, 'And I will break the pride of your power' (Vayikra 26:19). And R. Joseph explained: These are the bula'ot (city councils) in Judah. Buti means the poor, as it is written, 'You shalt surely lend him sufficient [ha'avet העבט is similar to buti בוטי] ' (Devarim 15:8). Raba asked a certain foreigner [who spoke Greek, Soncino suggests "linguist"] 'What is the meaning of prosbul?' He replied: 'The pursa (enactment) of the matter.'"
(ג) פְּרוֹזְבּוּל, אֵינוֹ מְשַׁמֵּט. זֶה אֶחָד מִן הַדְּבָרִים שֶׁהִתְקִין הִלֵּל הַזָּקֵן, כְּשֶׁרָאָה שֶׁנִּמְנְעוּ הָעָם מִלְּהַלְווֹת זֶה אֶת זֶה וְעוֹבְרִין עַל מַה שֶּׁכָּתוּב בַּתּוֹרָה (דברים טו) הִשָּׁמֶר לְךָ פֶּן יִהְיֶה דָבָר עִם לְבָבְךָ בְּלִיַּעַל וְגוֹ', הִתְקִין הִלֵּל לַפְּרוֹזְבּוּל:
(3) [A loan secured by] a prozbul is not cancelled. This was one of the things enacted by Hillel the elder; for when he observed people refraining from lending to one another, and thus transgressing what is written in the Torah, “Beware, lest you harbor the base thought, [‘The seventh year, the year of remission, is approaching,’ so that you are mean to your needy kinsman and give him nothing.” Hillel enacted the prozbul.
The rabbis of the time found the state of affairs to be both a major challenge to the status quo and a violation of numerous mitzvot, Torah commandments, that require magnanimity to the poor, including one within the aforementioned passage in Deuteronomy. The rabbis, under the suggestion of Hillel the Elder, created a loophole in Jewish law, in which a legal document would accompany the interest-free loans (charging interest to fellow Jews is forbidden in the Torah) issued by individuals that stated that the loans were to be transferred to the courts as the law of remission does not apply to loans within the public domain. This groundbreaking institution benefited both borrower and lender; because lenders knew their money was safe even following the Sabbatical year, they were likely to loan to the poor.
The last chapter of Tractate Shevi'it, chapter 10, in the Mishna and the Jerusalem Talmud, details the prozbul legal instrument and specifies how it is drawn up in a court when the loan is made.
Heter Iska and other evasions
The Mishnah forbids arrangements where a supplier gives a product to a shopkeeper to sell in return for a portion of the profit, since it views the supplier as effectively loaning the product to the shopkeeper, while ignoring the fact that the shopkeeper takes on the risk of theft, depreciation, and accidents. However, the Mishnah argues that it would not be counted as usury if the supplier employed the shopkeeper to sell the product, even if the wage was merely nominal, such as a single dry fig; this mechanism to permit profit being gained by a lender, in a business transaction between lender and debtor, was formalised as the Heter Iska, literally meaning exemption contract, which worked in exactly the same way as the earlier Sumerian business partnership contract between lender and debtor. Like all contracts, there are sometimes disputes, and the parties may resort to secular courts, running the risk of the court imposing interest, or other conditions which are contrary to Halakhic principles.
There were also a number of methods of evading the anti-usury laws completely, identified in the Mishnah. One of the simplest methods was for a person to lend something to another and buy it back from them at a reduced price (the purchase, of course, is independent of the loan); the Mishnaic regulations do not prevent the lender from requiring the full value of the loaned thing to be returned and so allows the lender to make a profit from the difference between the reduced price and the actual worth of the loaned thing.
Another significant loophole in the law was the biblical permission to charge interest on loans to non-Israelites, since this made it possible for an Israelite to charge interest on a loan to another Israelite, by making the loan through a third party who was not an Israelite; interest could be charged on the loan to the non-Israelite, who could then loan the money to the other Israelite at a similar rate of interest.