WASHINGTON, 11 June — Demographics are dramatically changing in United States, which includes a significant rise in Muslim immigrants. Most of these immigrants are here for ‘the American dream’ — to own a house, buy a car, and send their children to college. But until now, obtaining a loan for these acquisitions was a challenge, if they wanted to follow Islamic law.
American businessmen are well aware of the opportunities in the Muslim American community. Several years ago, the American Muslim Council (AMC) published a survey that there are an estimated 5 to 8 million Muslims living in the United Sates.
Islamic finance, a touchstone of Muslim life for 14 centuries, has made a powerful comeback in the last 20 years, led by increasing independence, oil wealth and Islam’s emergence as the world’s fastest-growing religion, with more than 1 billion followers worldwide.
Ali Abuzaakouk, director of the American Muslim Council, said he applauds the new incentive to help Muslim Americans. “The concept is beneficial because it gives Muslims an alternative. Until now we had to accept the de facto situation, but this offers us an alternative, which is basically that a lending organization or institution becomes a co-owner, and the owner pays these institutions on a monthly payment, the principle of the owner advance payment.
“Freddie Mac just started this initiative,” Abuzaakouk said, “and we know that in a capitalistic society, financial institutions look for different ways to get their share of the market. This is a normal process, and I think other organizations will not let the lion’s share to Freddie Mac. The Muslim market is growing, the per capita of the American Muslim is higher than the per capita of the average American, as is their educational level,” said Abuzaakouk, referring to their average financial income and education.
With assets estimated to be nearing $150 billion in Muslim countries, this Islamic religious-based system is gaining attention in the United States, where a few institutions such as ‘American Finance House — Lariba’ are catering to the fast-growing Muslim population.
As a result, one of the largest home-financing institutions in the United States, Freddie Mac Corporation, has recently announced it is launching a mortgage partnership with American Finance House — ‘Lariba,’ which operates in accordance with Islamic laws, and prohibits the payment of interest.
“There are over two million Islamic households in the US, 50 percent of the community is immigrant, and another 40 percent are African-Americans, and they cut across various cultures, and ethnic communities, and this makes it a very interesting home ownership opportunity for us,” said Saber Salem, vice president of customer strategies for the Freddie Mac Corporation.
“As we looked into this, and with my personal knowledge of the community, it’s an under-served market,” said Salam. “We hope to increase home ownership rates in Islamic communities, and growth is expected to continue in this immigrant and low-income communities. With less than 50 percent of the Islamic communities owning homes, we see a real opportunity.”
“What we are looking at is for financing be provided to Muslims in the US,” said Salam, who is of Bangladeshi origin. “This includes looking at contracts to ensure that they comply with US financing regulations, as well as meeting the needs of the Islamic consumers that are taking out these mortgages.”
“What we are doing is buying those mortgages and providing more liquidity to people lending in the Islamic communities, banks and financial institutions,” said Salam.
Freddie Mac sees more opportunities for the future. “There is another need we are hoping to fill as well. As we bring liquidity to this market, there are Islamic investors who have an interest in investing in these mortgage-backed securities that Freddie Mac will create to allow them to invest in this also.”
American Finance House — Lariba, who approached Freddie Mac with the lending idea, started with $200,000 in seed capital from local Muslim investors, and now offers home and commercial real estate loans, auto financing, equipment leases and trade financing.
The walls of the small but comfortable Pasadena office are adorned with verses of the Qur’an, which reminds those present that “Allah permitteth trading and forbiddeth riba,” or usury. With a $5-million portfolio, the firm is still basically unknown outside local Muslim circles. But company officials say they won’t compromise standards to place more loans or deliver higher returns to investors.
“We’ve been in business since 1987, so this is not a new concept for us,” Mike Maguid Abdelaaty, Lariba’s president, told Arab News. “We started out with a handful of families in Pasadena, California, and with only $200,000 in capital. We wanted to find a way to help finance that group of Muslim Americans who were having difficulty obtaining loans, because of their religious observance.”
Abdelaaty, who came to the US from Egypt as a teenager, says Lariba, an acronym for ‘ Los Angeles Reliable Investment Bankers Associates,’ is still growing. “As a finance leader, we provide finances for people and businesses for predominately, but not only, Muslim Americans. By law, we cannot discriminate.”
Abdelaaty says their system models what he calls: “sociably responsible lending.” “We try not to use the label, ‘Islamic Financing;’ we prefer the term “socially responsible financing, or Lariba financing,” that way it is viewed as all-inclusive and will not hurt our religion,” said Abdelaaty, who worked in Saudi Arabia for three years at the Saudi Investment Bank in Jeddah, before returning to the US and taking over the presidency of the American Finance House in 1999. The company is headquartered in Pasadena, California. The company is licensed to conduct business in 21 states.
“My background is on the traditional side of finance and banking. I am now trying to apply my expertise and knowledge in the growing field of Islamic banking,” said Abdelaaty.
According to the teachings of the Holy Qur’an, and the Shariah, Islamic religious law prohibits Muslims from paying or receiving interest. Religious scholars say the ban was a response to the age-old practice of loan sharking. But in a modern society, it prevents observant Muslims from taking out mortgages, having debits on credit cards or investing in bonds, Treasury bills, or anything else that promises a guaranteed return.
This does not mean that Islam frowns on making money or demands that Muslims revert to an all-cash economy. What is essential is that all parties in a financial transaction share in the actual profit or loss of a venture, and that no one receives a predetermined compensation-i.e., interest.
In effect, the system functions much like Western equity financing while protecting borrowers from leveraging themselves into the poorhouse.
Thus, “depositors” in Islamic banks are really shareholders who earn dividends when the bank turns a profit, or who lose a portion of their savings if it posts a loss. Paying rent for the use of a real asset is perfectly acceptable under Islamic law. So business owners can lease equipment through contracts, while would-be homeowners can acquire houses through rent-to-own transactions.
In the past, companies such as the American Finance House had to put these loans in their balance sheets, rather than selling it in a secondary market, which is what Freddie Mac specializes in.
“What we are doing is buying these mortgages and providing more liquidity to people lending in the Islamic communities, banks and financial institutions,” said Freddie Mac’s Salam.
“From my experience in traditional banks, usually when you help someone by providing them financing, the most you get is a verbal expression of thanks, a note, or a pat on the back. But in Lariba financing, the clients actually pray for you — they pray for you out of gratification, which is the best reward for us,” said Abdelaaty.
