The Islamic Post Blog

By Raheemah Atif
Islamic Post Staff Writer

(IP) –Islamic financial institutions are weathering the economic storms by most accounts, according Professor Ibrahim Warde of the Fletcher School of Law and Diplomacy at Tufts University, who compared the increase in Islamic economic institutions and their unique financial products with the dramatic resurgence of Muslim women wearing their traditional head scarves.
Although much of the Middle Eastern financial structure is part and parcel of the western conventional finance, which includes involvement with interest-related dealings, 2007 saw growth in the Islamic financial sector worldwide in an upwards spike of $900 billion dollars, Professor Warde explained. Accompanying this rapid growth, Islamic scholars who are knowledgeable in the detailed science of Islamic economics are in sharp demand as banking companies on both sides of the Atlantic, and beyond, seek more precise definitions and explanations of the demands of the Islamic law system upon financial transactions.
Islamic bonds, or sukuk, have been among the most prolific of financial products over the last two years. A bond is a loan to an investment group or company, who then rents the money to a business that may need capital for various reasons. The price of the bond is repaid in a specified time period, with the additional profit of the “rental fee” paid to the person who originally purchased the bond. The critical feature of Islamic investment is that it is illegal to “sell” debt. Sukuk is now being re-examined by Shari’a financial scholars to assure its current form is fully in compliance with the dictates of the Islamic law.
Throughout the Muslim world, homes are being sold by means of Islamic financial transactions, i.e., in accordance with the Shari’a legal requirements. Dr. Muzzammil H. Siddiqi, stated, by way of advertising his services, that Muslims should, wherever possible, opt to utilize Islamic banks for home financing since it is now readily available. The murabahah transaction (as it is called) is the Islamic transaction for home buying or other types of large purchases, where the bank would actually purchase the property for the buyer, and attach its fees onto the purchase price. The buyer will then pay, in installments, the price agreed upon by the bank and the buyer for the purchase – without riba, or interest on the installments.
The University Bank of Ann Arbor, Michigan, which has done nearly $80 million dollars in Islamically approved residential and business mortgages for Muslims in 15 states, was recently recognized by the American Bankers Association for its service to its Muslim clients. The bank was also rated “Outstanding” by the FDIC (Federal Depositors Insurance Corporation) for community service and for its commendable reinvestment in the community. It features Shari’ah compliant ‘Deposits of University Bank and Mortgage Alternative’ (MALT) products, and also has an investment division that offers SC (Shari’a compliant) Mutual Funds, or investing groups, to its Muslim and non-Muslim customers. While the stock market recorded one of its worst weeks, and General Motors slid towards bankruptcy, the University Bank recorded one of its best periods ever, completing 11 home sales to Muslim clients, with four more closings expected the following week. The New York Times reported that Steven Ranzini, president of University Bank, recognizes a fringe benefit of serving the Muslim community, in that clients who navigate through the process to acquire a home via a Shari’a compliant mortgage, has done so based upon his own religious convictions that the client is not very likely to default as it would be considered almost a sin to do so. In the words of Mr. Fariz Huzair, who recently purchased a home in Michigan, “In my heart, I’m doing this because it’s the command of my Creator …you have a standard you’re supposed to live up to.”