The prohibition of interest payment is in the Thora.
Interest = Agar natar, which means in Aramaic "time value".

The sages of the Mishna and Guemara have designed proper solutions which has been around for 3,000 years. They are described in the Talmud Tractate "Baba Metzia"

With time it became know as "GMACH" which stands for "Gmilut Hassadim" (doing good). The principle of risk sharing are there fully at play and interest are indeed prohibited.

Banks in the Modern State of Israel also lend money under a financially kosher contract which is called "eter iska".

This contract is build in the following way :
1 - Half of the loan is pure loan with no interest.
The bank deposits money with the lender and takes guaranty against it. The Bank expects to be repaid in full and takes no interest.

2 - The other HALF is full risk sharing.
However, in order not to be involved in the day to day activities of the borrower, the parties agree that there will be a predetermined amount of money paid out of the profits.
This profit is expressed in percentage.