Bonding with the State

Question: Is there any problem with investing in Israel Bonds in terms of ribbis? My wife has some money coming due and my father-in-law is asking if we want to continue to invest in Israel Bonds sold in the US.

Answer:

Israel Bonds are a halachic concern in terms of ribbis. There are a number of solutions.

We recently discussed the opinion of Rav Moshe Feinstein (Y.D. 2:63), who views all corporations leniently. He regards a borrower as someone who has a personal liability for the loan. If the loan is guaranteed by the company's assets and not the individual Jewish shareholder or director, then the corporation may pay ribbis. (Rav Moshe does not allow borrowing from and paying interest to a corporation, since in that case a Jew is responsible for paying the debt.) According to Rav Moshe, Israel Bonds are also permitted. However, your financial background led you to consider the possibility that Rav Moshe's information is no longer accurate.

Rav Zvi Pesach Frank (Har Zvi Y.D. 126) disagrees with Rav Moshe's analysis, since the company is owned by Jews. However, he does not consider the Israeli government a Jewish entity. Jews control the country’s assets, no one owns them. So if an incorporated bank has a Jewish owner, he sees ribbis as a problem, but government money has no owner and therefore ribbis is not a problem. Consequently, the Israeli government can pay interest.

Rav Blau (author of Bris Yehuda, perhaps the most authoritative contemporary book on ribbis) is not satisfied with this. Apparently he sees the Israeli government's assets, which are controlled by Jews, as Jewish assets and regards the controllers as being in violation of offering ribbis and the borrower of receiving ribbis.

Therefore, a heter iska is necessary. The Israeli government uses a general heter iska. Rav Blau questions this as well. A heter iska is based on the assumption that the borrower will use the money to generate profits. Some poskim consider this an absolute requirement. Since the Israeli government is not involved in generating profit, a heter iska is ineffective.

However, he concludes that all the above arguments combined are enough of a basis to permit buying Israel Bonds. There is a heter iska in place and the assets cannot be said to belong to any particular Jew or group of Jews.

This ruling is very much dependent upon a thorough understanding of financial institutions and the Israeli government in particular. You may be in a better situation to assess the validity of this psak, now that you have been presented with the fundamental principles behind it.

My understanding leads me to believe that buying Israel Bonds is permitted, but that if there are other alternatives in a gentile market it is advisable to avoid investing in the Israel Bonds. Surely allegiance to and support for the State of Israel is a strong consideration for some investors. Those values must be weighed against the halachic considerations mentioned, and that is a personal decision.

BookID: 2 Chapter: 160