As indicated above, the prohibition against lending with interest is not rooted in natural morality. On the contrary, the ability to receive credit in exchange for money is often in the interest of the debtor. Likewise, as the creditor could have invested the money and earned profits from it, it is not fair that he should have to lend it without receiving any yield, especially when the debtor uses the money for his own business and earns profits through it. Because lending and borrowing with interest seems reasonable and is nevertheless prohibited, the Sages, in order to inculcate the seriousness of the prohibition, instituted a series of laws and prohibitions that extend the prohibition to additional cases by rabbinic law. Some of these are very far removed from the case of a loan with interest and are called avak ribit, literally “the dust of interest.”

The Sages prohibited certain transactions because they are considered to be avak ribit.

Discounted advance payment on a sale: A seller may not tell a buyer: “The product costs $100, but if you agree to pay me now and receive delivery only in a month’s time, you can have it for $90.” However, it is permitted to reduce the price of a product in exchange for payment in cash, under the following conditions:

(1) the product is in stock;

(2) it has no fixed price;

(3) the seller does not expressly tell the buyer that the discount depends on the method of payment.

Delayed payment: The seller may not offer the buyer the option to pay later at a higher price. For example, he may not say: “If you pay me now for merchandise that I provide you now, the price will be $100, but if you pay me for it only after a month, the price will be $110.” This is a common problem today in cases where payment is made in installments, where the seller sets the price of the item higher than if it was paid for up front. Nevertheless, if the product has no clear nominal value (referring not only to the price tag on the product, but to a uniform price over a wide cross-section of stores), and the seller does not explicitly state the terms to the purchaser, he may make his own calculation and ask for a deferred payment at a higher price.

Loans that are not in the local currency: A loan should be made only in the currency that is used locally. Since, as far as the halakhot of interest are concerned, prices are defined in terms of the local currency, the value of foreign currency fluctuates, raising the risk of a sort of interest on loans made in it. For example, if someone in Israel lends someone else $100 when the shekel-dollar exchange rate is four shekels to a dollar, and at the time of repayment the exchange rate has risen to four and a half shekels to a dollar, then when the debtor repays $100 in U.S. currency, he is repaying more (in shekels) than he borrowed.

In the past, when real estate prices in Israel were set in dollars, the dollar could also be treated as a local currency in Israel. Today, however, when the shekel is stable and prices are set in shekels, it is highly doubtful that the dollar can be considered a local currency.

Accordingly, it is prohibited to borrow in one type of currency and repay in another type of currency, e.g., borrowing in shekels and repaying in dollars, unless the amount repaid is fixed by the original value in local currency of the loan, which means that in effect it is a loan in shekels. For example, if one borrows 100 shekels and wishes to repay in dollars, one must repay 100 shekels worth of dollars in accordance with the exchange rate of the day of repayment.

Interest in partnerships: There are certain prohibitions of interest that apply to business partnerships. The main idea is that all business partners must be equally exposed to the possibilities of profit and loss. When one makes a transaction as part of a partnership, he must make sure that the deal is conducted in accordance with the principles of Jewish law.

Penalties: Many contracts include a penalty clause entailing fines for arrears in payments. Such a penalty may be problematic in terms of the halakhot of interest. The possibility to insert clauses of this kind certainly exists, but it must be done in accordance with halakhic guidelines.

Interest through speech, gifts, and advance interest: The prohibition of interest includes changing the relationship between the creditor and the debtor. The debtor may not provide the creditor with favors due to the loan and the relationship that prevailed between them before the loan must remain the same after the loan was granted. For this reason, the debtor is forbidden to praise or flatter the creditor, or relate to him or provide him with a service in a manner that he had not previously accorded him.

The debtor may not give the creditor gifts until after he has repaid the loan. It is likewise prohibited to give someone a gift because he hopes to borrow money from him in the future.

Taking advantage of the situation by the creditor: The creditor must also be careful to keep the relationship between the pair as it was before the loan, rather than taking advantage of the situation to submit various requests to the debtor that he would not have done previously. For example, if before the loan the creditor would not have felt comfortable asking the other to borrow his car, he should not do so after lending him money.

All the above cases are prohibited under the rubric of avak ribit.