Pashkevilim – the posters plastered on walls and fences in ultra-Orthodox neighborhoods, which typically publicize rabbinical decrees, or moral or halakhic exhortations – have taken an unusual turn into the world of finance in recent weeks.
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The posters concern a decision nearly every ultra-Orthodox (or Haredi) family has to make: How to invest the money they and every other Israeli family with children under the age of 18 get from the government under the new child-savings program.
The program, which went into effect this year, gives 50 shekels ($13.50) a month to each child to receive when they reach adulthood, plus a bonus that could increase the savings by up to another 1,000 shekels. That adds up to 10,800 shekels per child, before counting the estimated 4% interest the savings will accrue annually (minus management fees).
The parents can’t touch the savings, but they can choose where to invest it.
For Haredi families, which usually have many more children than other Israelis and usually have much lower incomes, the plan is a welcome gift from the state. But, as with everything else in ultra-Orthodox life, there’s a kosher way to do things.
And so the black-and-white pashkevilim are instructing the faithful what the kosher and glatt kosher options are. “Parents are obligated to choose the halakhic plan,” the posters declare, referring to Jewish religious law.
The “glatt capital” option, just like glatt kosher food, is supervised by both the Badatz rabbinical court and the Jewish Law Committee. Right now, three financial-services providers meet that strict standard: insurance company Harel, and investment houses Meitav Dash and Psagot.
The second, ordinary level of financial kashrut is supervised by the Badatz organization alone and is offered by investment houses Altshuler Shaham, Excellence, Halman Aldubi and Inter-Gamma, as well as the insurers Migdal and Menorah. The pashkevilim also approve investing the savings through any of Israel’s banks, all of which are already approved for doing business with the Haredi world.
In the first month of the program, which is administered by the National Insurance Institute, the government paid out 120 million shekels to some 2.79 million Israeli children.
There are 12 financial-service companies authorized to manage the money for savers. Of those, Altshuler Shaham has been the investor of choice by a wide margin, getting about 54% of the savings. People in the financial-service industry estimate that only 5% of the money goes into kosher savings.
What are the halakhic standards that approved financial firms have to meet? Under Jewish law, it is in principle forbidden for Jews to charge each other interest, even if the other side is willing to pay it. However, granting a heter iska (an exemption contract, which Israeli banks have) redefines the loan as a transaction akin to a business partnership.
In such transactions, half the money the lender gives to the borrower continues to belong to the lender, which is given as a deposit to be returned at the end of a given period of time. All the laws covering deposits apply to this part of the sum. The second half is given as an interest-free loan that the borrower is free to do with as he/she pleases. At the end of the term, the lender gets back his interest-free loan as well as half the profits on the deposit.
The heter iska was first developed in Germany in the 17th century, and rapidly spread to other countries. It is limited to business loans, not consumer lending, although some rabbinical authorities have allowed it.
The investment houses enjoying the Badatz certificate pay 30,000 shekels a year for it. This entitles them to offer kosher investment products, like pension funds and mutual funds. However, the children themselves pay a price for their kosher savings with a lower rate of return.
Although they can invest in futures contracts on stock indices, the halakhic plan invests most of the savings in Israeli government bonds, which are paying very low rates of interest. Worse still, if interest rates rise, bondholders would suffer losses on their principle. These plans don’t invest in non-traded investments, which in recent years have enjoyed higher returns.
These days, most investment houses prefer to put client savings in corporate bonds and stocks. Most portfolios are weighted 90% toward stocks, although most of the programs selected by parents are 50% weighted to equities.