There are three references in the Bible to the lending of money, and the taking of interest.  Exodus and Leviticus state that if a Jew lends money to a fellow Jew, he must not take interest.  Deuteronomy forbids the taking of interest from a fellow Jew, but permits taking it from others.

Scholars, such as Maimonides, insist that taking interest from a Gentile is a positive commandment of the Torah.  Maimonides believed that the practice would minimize intermarriage.  The reasoning is that if a Jew lends money to a Gentile, at no interest, he encourages social contact.  Gentiles would eagerly befriend Jews, so that they might obtain interest-free loans.  As a consequence of the close friendship that would develop, Jews might be influenced to adopt Gentile practices, which would in turn weaken Judaism.

How did it happen that Jews ignored the Biblical commandments and began to take interest from fellow Jews as well as Gentiles?  In the post Talmudic period the Church became a powerful political force in Europe.  Monarchs were guided by the will of the Church, and Church and State joined hands in denying Jews the right to own land.  Forbidden to own land, for their livelihood, Jews turned to commerce, and industry, and particularly to banking.  They were practically forced into banking by the Church when, in 1179, Pope Alexander III, issued a ban prohibiting all Christians from lending money at interest.

The Church, which controlled government policy in most countries, did not apply the ban to Jews, for Jews were not "believers."  In time, as Jews became more immersed in commerce, they travelled from marketplace to marketplace, from country to country, buying and selling merchandise. Since they had to pay cash when buying, Jews were forced to borrow money. But since Christians were unwilling to lend money, Jews were forced to turn to fellow Jews.  Rabbinic authorities realized that it would become impossible for Jews to make a living if they could not borrow money, so they allowed Jews to charge fellow Jews interest.  Although this is, in effect, a violation of Biblical law, it was deemed justified on the grounds that the livelihood of Jews was at stake.