The Torah does forbid taking or giving interest on a loan. So how is it that banks do this even in Israel? The way this works is based on a gemara in Bava Metzia [page 104] which says that an iska [money given to deal with] is half a loan and half a guarded object. That itself is based on a mishna in Bava Mezia page 68 that says to give money to someone to buy some project or product and to sell and they will divide the profits is forbidden unless the one who is to do the selling gets paid. [How much is a debate.]

The way this works is that half is a loan that has to be paid back. So the lender can not get profit from that. But half is a משכון object that one is paid to guard. So the first party can get profit from that. The trouble is that there has to be risk so that it is not interest. The risk part is on the guarded object which if stolen does not have to be paid back. The basic idea is that any time there is a possibility for the lender to loose or to make money that is not considered to be interest.


So how much does the one that receives the money have to be paid? This is an argument among the sages of the Mishna. Then Rashi and Tosphot disagree about our particular Mishna holds. Then there is a debate between Shelomo Luria and the Maharsha and Maharam about what Tosphot and the Rosh mean. This is a long and hard issue that I have just begun to work on. The Rif, the Baal HaMeor and the Ramban also have a lot to say about this but I have not had a chance yet to get into this in detail.