HFLA-SA recaps last weeks Parashah, Mishpatim

February 8, 2024

“If you lend money to My people, even to the poor among you, do not act toward them as a creditor; you shall not charge them interest.” – Exodus 22:24 (Parasha Mishpatim)

Dear Friends,

Why not just charge a little interest?” We get this question a lot from people who have just learned that the Hebrew Free Loan Association of San Antonio (HFLA-SA) makes interest-free
loans. Their logic is sound: If HFLA-SA charged 5% interest, the cost of our loans would still be affordable to most borrowers, and we would have a revenue stream to support our lending.

Even better, if we charged interest, we might be able to tap into much larger credit pools from banks and other lenders who charge interest. Right now, without revenue from interest, the cost
of that capital is too high, so our ability to grow is limited by the amount of capital we receive in the form of charitable gifts or interest-free loans to HFLA-SA.

Please allow us to share three reasons why we think the arguments for charging interest are weaker than they seem and why HFLA-SA should remain an interest-free lender. First, it’s true that a low interest rate avoids burdening our borrowers with charges they cannot afford. For example, charging 5% on our $6,000 Personal Loan would take the monthly payment from $200 to $210 not that big of a change.

But once we build a model that relies upon interest from borrowers, what happens when interest rates rise, and the cost of capital to HFLA-SA suddenly increases as it did over the past few
years? It would be hard to imagine a solution that avoids passing along the rise in the cost of capital to our borrowers, and suddenly, a 5% charge creeps up to a 10% charge or even higher. We have seen this happen across the microfinance sector where current rates for small business loans can range from 8.5% to just under 30% with a 4% origination fee.

Second, when donors hear that HFLA-SA is lending at 0%, many are inspired to give us capital to increase our ability to lend, or to lend us capital for this purpose at 0% interest. Zero for zero
is a simple and compelling exchange. Once HFLA-SA starts charging interest, lenders will start to ask for a share of that interest because they now see lending to HFLA-SA as less of a purely
philanthropic contribution and more like a transaction in which it is reasonable to ask for a modest return. HFLA-SA has been enormously successful in raising loan capital from individuals and
institutions willing to keep our cost of capital at zero.

It’s possible that we could raise more capital if we offered lenders a return, but because we are very far from exhausting the sources of 0% capital, we are confident that we can double or triple
our current volume of lending using the method we have been using for the past 100 years.

Finally, perhaps the most important argument against charging borrowers’ interest is that it runs counter to the values and traditions on which HFLA-SA is based. This week’s Torah portion, “Mishpatim,” is one of three passages in the Hebrew Bible where the Israelites are enjoined to lend to needy people without charging interest because responding to the material needs of our neighbors is a mitzvah – a holy act, not a profit-making opportunity.

When family members lend to each other, they do so because they feel an obligation to support their relatives and because they understand that the person needs a supportive hand. They may not have much money to spare, but their relative’s circumstances make a claim on their compassion and solidarity, and they lend with an open hand and an open heart.

This kind of freely giving attitude is why the Sages of the Talmud refer to interest-free loans as Gemilut Chesed – an act of compassion and kindness. And it was the founding idea of HFLA-SA to extend this kind of lending beyond the realm of the family to all neighbors in need.

HFLA-SA loans are not just low-cost cash. By refusing to charge interest, we signal to borrowers that HFLA-SA is not a bank or a credit card company, but an institution of neighbors helping neighbors. We are an institution that declares: “We are going to lend you what you need, and we trust that you will pay it back because that is what neighbors do for one another. We care about you and want you to succeed. One day, we hope you will be able to support HFLA-SA so others will have the same opportunity we were able to provide to you.”

We don’t think nonprofit lenders that charge interest are wrong to do so – it may be that rapid scaling requires some charging of interest – but for all the reasons we have explained, HFLA-SA continues to choose a different path.

We are committed to finding ways to make more loans every year without charging even a little interest, and we are proud to do so in the spirit of our founders whose values and commitments connect us all the way back to Sinai.

Thank you for being part of this extraordinary community as we carry these values and commitments in our next 100 years of Life-Changing Mitzvahs! We invite you to celebrate with us at our Centennial Year Celebration Picnic on May 5, 2024, from 12:00 to 3:00 PM at the Barshop Jewish Community Center.

Warm Regards,

Jeffrey A. Siegel, President

Howard S. Feinberg, Executive Director