The Double-Edged Sword of Debt

By BRENT CHAIM SPODEK

Parashat Ki Tavo (Deuteronomy 26:1-29:8)

The Torah is not shy about outlining the blessings which will accrue to those who follow the law, and neither is it reluctant to list all of the consequences which will befall those who transgress.

In Parashat Ki Tavo, the Torah teaches that if the Israelites simply obey God's law, then their children will be healthy, their breadbasket will overflow and their enemies will flee from them. But if they are wicked and transgress, then the opposite will be true—their children will be enslaved, they will be reduced to cannibalism and their enemies will overrun them.

And yet amidst these seemingly simplistic visions of feast and famine, there is one promise which is somewhat more complex. The Torah promises that if the Israelites behave as they should, they will be a creditor to many and a debtor to none, (Deut 28:12.) but if they transgress, then they will be indebted to a stranger. (Deut 28:44)

On the face of it, this admonition makes good sense—indebtedness would have been a debilitating liability for an emerging nation like B'nai Yisrael. Today, the world's 29 poorest nations collectively owe more than $59 billion to world financial institutions.¹

Their interest payments siphon critical financial resources away from important investments in health, education, and infrastructure.

Indeed, for the residents of the Global South, who suffer from excruciatingly high levels of poverty, illiteracy, and premature death, debt is often the most monstrous of afflictions. Their countries carry debt burdens which can never be repaid. Between 1970 and 2002, world financial institutions loaned African countries approximately $540 billion in loans. Because of rising interest rates, those countries have paid back more than $550 billion, but still owe more than $295 billion today. Collectively, they spend more than five times as much on debt service as they do on health care.²

Not only that, but for many of these countries, the original loans were made to illegitimate governments whose corrupt leaders embezzled huge sums and failed to invest the loans in their counties' economic development.

But while the problems of debt can be overwhelming, there are times when debt is actually the best, if not the only way to advance. Few Americans could go to college, buy a house or start a business if they weren't able to borrow money when they needed it. In fact, Reish Laquish, one of the rabbinic giants of the Talmud, taught that giving a loan is greater than giving charity, and loaning money so that an impoverished person can create a business is even greater still.³

Within the lived history of the Jewish people, there is a proud tradition of interest-free loans provided to the indigent. From the beginning of the 20^th Century in America, Jewish immigrants engaged in micro lending through the Hebrew Free Loan Societies which provided interest-free loans to Eastern European Jewish immigrants enabling them to start small businesses—petty retail stores, small workshops or peddlers' pushcarts and wagons. At their peak, more than 500 Jewish free loan societies operated throughout the United States. In 1920 alone, the New York Hebrew Free Loan Society distributed more than $1 million in loans to Jewish-owned small businesses.⁴

Similarly, even though many developing nations are struggling today under debt owed to faraway banks, small-scale debt, of the type which the Hebrew Free Loan Societies offered (and still offer) in America, is one of the most promising avenues out of poverty for many citizens of the developing world.

Since 1976, the Grameen Bank of Bangladesh has been offering micro-credit loans to small groups of extremely poor women who monitor each other at weekly meetings to ensure repayment. As loans are repaid, people are allowed to borrow more, enabling borrowers to begin small-scale businesses.

As of today, the Grameen Bank has loaned out more than $5 billion to nearly 6 million borrowers, nearly all of whom are women.⁵ It has been a model of responsible debt which has been replicated around the world to great success.⁶

In the mind of the Torah, and in our age as well, debt is indeed a curse when it is owed to faraway creditors—strangers who are unconcerned with the circumstances of the borrowers and see them merely as pathways to profit. But not all loans are predatory, and not all lenders see borrowers as means to an end. For Reish Laquish, the clients of the Hebrew Free Loan Societies, and the clients of the Grameen Bank, loans which give the weakest members of society the opportunity to help themselves can be the most tremendous resources there are.

¹ The Enhanced HIPC Initiative at the website of the World Bank.

² "Debt Cancellation: Historic Visions, New Challenges", Foreign Policy In Focus, May 2005

³ Shabbat 63a. Rashi explains that this because a poor person is less embarrassed to take a loan than a handout.

⁴ See Chapters in American History at the website of the American Jewish Historical Society.

⁵ See Grameen Bank At a Glance at http://www.grameen-info.org/bank/GBGlance.htm.

⁶ See "The hidden wealth of the poor," Nov 3rd 2005, The Economist print edition.

Reprinted with permission from American Jewish World Service.