According to the Torah, among other things, the Sabbatical year annulled most private loans (see Devarim 15:1-3). Recognizing that lenders were reluctant to offer loans as the Sabbatical year approached – which was, itself forbidden by the Torah (see Devarim 15:9-11), Hillel haZaken established a method that would allow the lenders to collect the debts that were owed to them, even after the Sabbatical year. His suggestion was to write a document called a prozbol, which effectively turned the loan over to the courts, which were not constrained by the laws of Shemita, since they do not apply to public debts. Thus, when the Sabbatical year was over, the court would be collecting the debt, rather than the individual. This legal fiction was viewed as a benefit for both the rich – who would now be able to recover their loans – and the poor – who would now be able to borrow money when they needed to. The mechanics of the enactment are subject to some disagreement. According to the Sifre it appears that the law annulling debts during Shemita applies only to the creditor, but not when the loan was turned over to the court. Hillel’s legal document allowed the debt to be taken over by the court without the promissory notes actually changing hands. Another approach is that the law of shemitat kesafim (monetary sabbatical) applies even if the loan is turned over to the court. What the prozbol accomplishes is effectively adding a condition to the loan allowing it to be collected though the medium of tenai she-ba-mamon kayyam – that in money matters any agreed upon condition applies, even if it negates the standard rules as presented by the Torah.
Our Gemara quotes a baraita that teaches that a prozbol will only be effective if the borrower owns land that can secure the loan – owning slaves would not be a sufficient guarantee. Rashi explains the need for land as the basis for a prozbol as stemming from the fact that this law only applied to “normal” loans. In order to be considered a “normal” loan, land had to be made available as a guarantee that the loan would be repaid.