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Growing Muslim presence reshaping financial practices
By G. Jeffrey Macdonald

Boston: Americans awash in credit cards, car loans and mortgages have long assumed there's only one option for those who need something now and can't pay cash: borrow the sum and pay it back -- with interest.

But the world of American finance is changing to deliver more options, thanks to demand from the growing number of observant Muslims in the United States and their adherence to Islam's moral code on financial matters.

Islam prohibits usury, or interest. In the United States, as lending and borrowing are currently practiced, the rule has been an obstacle for Muslims seeking to buy a house or build a worship space. Often, they have waited until savings or donations could cover all costs.

But as the Muslim population grows -- by some estimates to around 6 million people -- its need for as much as $1 billion annually has led foundations, municipalities and for-profit financiers to find new ways of furnishing capital without charging interest.

In a watershed example from earlier this year, mortgage giant Freddie Mac started bankrolling loans through a Muslim-friendly lender in Los Angeles whose acronym, LARIBA, means ‘no usury’ in Arabic.

‘They concurred that there is a huge, unmet demand,’ said LARIBA President, Mike Maguid Abdelaaty. Since joining with Freddie Mac in January, he said, LARIBA has dropped its down payment requirements from 40 percent to 20 percent and is en route to doubling the number of loans it writes each month, from 10 to 20. LARIBA does business in the 19 states where Muslims are most likely to live and it has plans to expand.

With at least six Muslim lenders now competing for customers, Hossam Jabri of Cambridge, Mass., smells an opportunity to buy the home he's wanted for his family for five years.

‘You used to need to invest for years before you could make the down payment,’ Jabri said. ‘I can tell there are many more options available now,’ including offers that will take as little as 15 percent down.
What makes interest-free financing possible is a paradigm in which the capital supplier shares ownership -- and risk -- with the consumer. Rather than lend a chunk of money so the consumer can own a home exclusively, for instance, the financier buys the portion of the property that the consumer can't afford and leases that share to the consumer at going market rates. As the lessee makes regular payments, he or she gradually buys out the financier's share.

In the end, the Muslim consumer usually pays as much as a traditional interest-bearing loan would have charged. But saving money is not the goal of interest-free purchasing, according to Hanif Crutchfield, a board member at the Minnesota chapter of the Council on American-Islamic Relations (CAIR).

‘You may not get a better financial deal, but morally speaking from an Islamic point of view, you're in much better shape,’ Crutchfield said. To the question of what's so bad about charging interest?, Muslim scholars and clerics have multiple answers. Some say it's a sin for those with capital to take advantage of the needy by charging an interest fee. Others say interest represents unearned income, and all godly income must be earned. All seem to agree, however, that those who lend without sharing the borrower's risk commit a sin, and this is fundamentally why the Koran prohibits usury. Interest payments ‘may not strike the average American as having anything to do with religion,’ said Taha Abdul-Basser, Islamic law adviser to the Harvard Islamic Finance Information Program in Cambridge, Mass.

He points out that the Old Testament, common to Jews, Christians and Muslims, also prohibits usury (Deuteronomy 23:19), but today followers seldom enforce
the code.

‘Muslims still happen to be following that part of their religion,’
Abdul-Basser said.

As Islam grows in the states, it's not just for-profit lenders who are
rethinking business as usual. Institutions of varied stripes are taking
unusual steps to get money into the hands of observant Muslims.

The City of Boston addressed the Islamic challenge this year by selling a
$225,000 parcel at a discount to the Islamic Society of Boston in exchange
for lectures, counseling and fund-raising assistance at Roxbury Community

In Minnesota, Hennepin County -- which includes Minneapolis -- started
offering an Islamic contract for the thousands of African Muslims who live
there and might want to buy tax-delinquent properties on which the county
has foreclosed.

‘The county said, `We want to be accessible to all our people. What do we
need to do to make it happen?’' Crutchfield said. The Islamic contract
costs $75, he said, and makes houses available for about the same cost as
interest-based contracts.

Foundations have also stepped forward to provide interest-free loans for
Muslim community centers. The North American Islamic Trust, for instance,
supplied $300,000 interest-free toward a $1 million facility for the West
Coast Islamic Society in Anaheim, Calif.

And, in yet another type of solution, donors from the Persian Gulf are
buying a rental property in Boston to generate cash for property upkeep at
the proposed $14 million Islamic cultural center. Construction begins in
September even though the community needs to raise another $10 million to
complete the project.

‘On community projects, especially schools and mosques, people tend to be
very generous,’ said Boston project director Yousef Abou-Allaban, citing a
dinner that raised $700,000 from local mosque members. Such signs of donor
zeal, said Abou-Allaban, make him confident that Boston's 70,000 Muslims
can finish construction by 2003 without any loan whatsoever.

As new forms of financing enable Muslims to build mosques, start
businesses and buy homes, this religious minority group is finding itself
more enmeshed in mainstream American life. And as its toehold grows
stronger, so also does the hope that Islamic priorities could shape
American culture.

‘We aim to strengthen a system that is fairer to people and based on our
values: community is above our individual needs,’ said Hussam Ayloush,
executive director of CAIR's Southern California chapter. ‘It's a way to
balance out the selfish trend of greedy capitalism. There must be a social
aspect to the economic system.’

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