Are non-Muslims eligible for these interest-free loans? “Koran-Friendly Lenders,” from Business Week, with thanks to Jerry Gordon:
Who wouldn’t want an interest-free loan? If you happen to be a devout Muslim, it’s the only option. Paying interest — riba — is forbidden. That puts would-be homeowners who are Muslim-American in a bind. Saving to pay for a home in full when housing prices are skyrocketing is nearly impossible.
Now Koran-compatible “Islamic banking” is coming to the U.S. Leading the way is Devon Bank, a small community bank in Chicago owned by the Loundy family, who are Jewish. In January, Freddie Mac (FRE ) agreed to buy Devon’s Islamic home financing products, freeing up capital for a national expansion. Devon also is working with Fannie Mae (FNM ) to develop Koran-compatible home mortgage products. Other banks are starting to offer Islamic services in the U.S., including the University Bank in Ann Arbor and HSBC in New York.
Devon, on Chicago’s North Side, anchors a neighborhood that has shifted from Eastern European Jews to Indian, Pakistani, and Middle Eastern Muslims. To meet customers’ needs, the bank, which has $261 million in assets, spent two years developing financial products that could conform to Islamic laws and pass the financial scrutiny of U.S. regulators.
Under Murabaha, or installment financing, Devon buys a property chosen by a customer, then turns around and sells it for a price that includes projected interest costs. There is no principal and thus, technically, no interest. Islamic financing is nearly half of Devon’s mortgage portfolio.
Can someone help me out here? Does this mean that the Muslim homebuyers buy the houses at rates that include the projected interest costs? Or that Devon absorbs the interest costs?
The bank also offers Koran-friendly financing for commercial real estate, business equipment, and letters of credit. “We are a community bank helping a community that’s being underserved,” says David Loundy, the bank’s legal counsel. “In this case it’s the Muslim community.” Given an estimated 6 million Muslims in the U.S., that’s bound to change.
Note that the bank seems to have accepted the inflated Muslim population figures put forward by American advocacy groups.