Posted on 01/15/2009 10:19:50 PM PST by nickcarraway
Big financial institutions have been battered by mortgages gone bad. But a tiny Michigan bank is getting attention in the industry by turning a profit on loans without even charging interest. Its specialty: financial products that comply with Islamic law. That means no collecting interest, no short selling and no contracts that are considered exceedingly risky. It also rules out some of the activity that got Western finance in trouble - subprime mortgages, credit default swaps and the like.
When you look at the economic crisis we're in, if you were to follow Islamic or sharia financing, you couldn't have this crisis," said John Sickler, corporate director for the bank, University Islamic Financial Corp in Ann Arbor. Islamic finance operations aren't prohibited from making a profit. Far from it. Instead, banks that comply with Islamic law, or sharia, earn money from fees that are part of the cost of the loan, some paid up front and some over time.
University Islamic Financial has two types of financing, one called a marked-up installment sale and the other a lease-to-purchase sale. Fees in both cases are comparable to interest payments in traditional loans, bank officials say. For example: A seller who bought a house for $100,000 could sell it for $120,000 or even $300,000, provided the buyer agrees it's a fair deal. The home could be sold on an installment plan negotiated by buyer and seller. The bank is a subsidiary of Michigan-based University B ank, and its leaders say they have talked recently with executives from two national banks hoping to learn more about the business.
Islamic law says money cannot grow by itself, the way it does with compounding interest. Trade is acceptable as long as the equal amounts of money are traded or two different things are swapped with a fairly negotiated price. So a dime for an apple would be considered "halal", or religiously acceptable, while one apple for two apples would be "harem," or unacceptable.
Even at University, not everyone is on board. Some customers have closed their accounts when they learned it was engaging in Islamic finance. Some employees who objected to the move quit. The bank also stopped having a Christmas party and no longer serves alcohol at after-hours events. The Michigan bank focuses on contracts that clearly spell out the risk and reward between lender and borrower. University Islamic Financial says it's the nation's first to offer Sharia-compliant, federally insured deposits. Islamic banking is more common overseas, but some US banks and credit card companies are exploring the idea of branching out into Sharia products to reach out to the growing Muslim population.
So Islamic banking is only expected to increase in coming years. Already, Citigroup offers Sharia products and services to clients overseas, and Visa says it has worked with banks around the world to offer Islamic-compliant products. The conventional banking system could learn a lot from the idea, said Jawad Ali, a finance lawyer based in Dubai and London who specializes in structuring sharia-compliant deals.
We haven't made as much money as the conventional banks because we can't, for example, sell what we don't own," he said. "We have to own it before we sell it. We may have missed out on gains in good times ... but we haven't suffered any losses." Of course, there's no guarantee that banks will find immunity in Islamic finance from a severe global downturn. "I am not doing banking on Mars," said Afaq Khan, the head of Saadiq, the Islamic banking arm of Standard Chartered Bank, based in London. "If real eco nomic activity slows down significantly, the Islamic banking industry will also be affected.
A sharia-compliant mortgage is like rent-to-own: There is no note, or mortgage, but typically part of each month's payment is held toward the ultimate purchase. The property is titled to an individual trust, or limited liability corporation. Deutsche Bank estimates total assets in the Islamic finance market at $1 trillion - a tiny fraction of global financial assets, but the bank said in a recent report that the sector been growing at a clip of 15 to 20 percent per year.
Most big international banks already have Islamic banking arms, and a November report by Moody's Investors Service shows that Islamic banks have been fairly resilient to the global economic downturn. The US banking industry has not embraced sharia banking. Wachovia, Wells Fargo and JPMorgan Chase said they have not adopted sharia practices and declined to comment about what they may do in the future. "As far as the future, we are always looking for opportunities to better serve our customers, but our speci fic strategy is proprietary," Wells Fargo spokeswoman Lisa Westermann said.
University Bank President Stephen Ranzini declined to name the US banks that University Islamic has talked to. But he said his bank soon plans to offer its services such as residential lending to other banks and credit unions nationwide. Sharia banking is an idea "that is long overdue in this country," said Amal Berry-Brown, vice president at Comerica, a Dallas regional bank that has talked with Ranzini. "At the same time, there really is quite a bit of work to be done.
Comerica has a strong customer base around Detroit, home to the nation's most concentrated Muslim population. One issue: There is "a big variance" within sharia law about exactly which financial practices are considered good and bad, said Mustafa Gultekin, a finance professor at the University of North Carolina at Chapel Hill. For University Islamic, the niche appears to be paying off. Ranzini said he expects it to generate more than 25 percent of the overall bank's revenue this year, up from about 20 percent last year.
so its not new to do conservative banking or loans.....plenty of businesses have done that....
no....you don't get rich on it.....but your money is safe and does grow......
In other words, the central tenet of Islamic financing is that their god Allah is so stupid that he can be fooled into thinking that something that looks, feels, and smells like collecting interest on a loan is something completely different, just because they are careful not to call it 'collecting interest'.
It's the same principle that lets some Muslims claim that adultery is a sin punishable by death, yet it's considered OK to fool Allah by having temporary marriages that last just long enough to 'consummate the deal', and then you can quickly and painlessly "divorce" the object of your affections for the past hour (or perhaps the past thirty seconds), pay her fee, and move on. No harm, no foul, no adultery.
That Allah character must be some kind of idiot not to 'get' the childish tricks that his worshipers play on him, huh... If your god is an easily-fooled simpleton, what kind of conclusion can we draw about you?
Shariah Finance Watch
Exposing the Risks of Shariah Finance
http://www.shariahfinancewatch.org/blog/category/usa/
Laughinggggggggggggggggggggg. You sure nailed all that on the head:)
OK, next topic : annulments. ... Couldn't leave it alone! ... Sorry! But these stick in my craw.
Recall also that in early Christianity it was a major, burn-in-hell sin to charge interest. And then one day the Vatican declared that it wasn’t a sin. Was God fooled?
‘Islamic Finance’ Spreads to U.S. Heartland
NewsMax | 1/13/08
Posted on 01/13/2009 7:54:10 PM PST by Sammy6
http://www.freerepublic.com/focus/f-news/2164190/posts
I find this story disturbing on several levels.
WTF??? Is this story real? Capitalists, unite! This flys in the face of my (albeit dim) understanding of macro and micro economics.
I guess this explains the economic conditions found in Islamic countries.
“In other words, the central tenet of Islamic financing is that their god Allah is so stupid that he can be fooled into thinking that something that looks, feels, and smells like collecting interest on a loan is something completely different, just because they are careful not to call it ‘collecting interest’.”
The laws are constantly changing. But I always believed it was illegal to disguise interest as fees.
I am trying to catch my breath here! ROFL.
forget Sharia! If banks would follow sound banking principles, they would all succeed and this crisis would never be!
By the way, PBS had a show on earlier this week called "The Ascent of Money" that not only showed the history of money, but tied in very well to the current financial crises. It pulled no punches on the sub-prime crisis, and the lending to uncreditworthy borrowers. One of the things I found interesting is that the charging of interest was prohibited by the church in the middle ages, that's why the moneylenders of Shakespeare's time were all Jewish.
If you would like to be added or dropped from the Michigan ping list, please freepmail me.
Fees in both cases are comparable to interest payments in traditional loans, bank officials say. For example: A seller who bought a house for $100,000 could sell it for $120,000 or even $300,000, provided the buyer agrees it's a fair deal.
The underscored is the crux of ANY investment, real estate or otherwise. Do these mullahlenders somehow go above and beyond to make certain that investors know what they are getting into?
I'm not saying that lenders have that obligation, actually. AFAIC, "Buyer beware" applies in every situation.
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