Does anyone have a program for lending to individuals of the Islamic faith?.....I'm not sure about this, but it's my understanding that paying interest on a loan is forbidden by their faith.....The senior lending officer thinks there should be a way around this without using the word "interest"....but then again...if it looks like a duck, quacks like a duck.....it's... "interest"....heehee

I have completed loans to people of Islamic faith, and never heard this. It wasn't a major market for the bank, but I probably booked over a dozen to MD's in the west. Is he sure this is a faith issue or something just one person has brought up?

I certainly wouldn't change the name of interest. I'd imagine the feds would jump all over that in a heart beat.

The OCC has issued Interpretive Letters on at least two such "non-interest" plans. See: http://www.occ.treas.gov/interp/dec97/int806.pdf
and
http://www.occ.treas.gov/interp/nov99/int867.pdf

I did a little research because you made me curious It seems my clients (using business lines mostly) were just taking a looser approach to the rules of their faith. (Did you know Christianity and the Jewish faith also forbid interest but they lightened up on the issue many years ago).

Anyhoo, here is an article discussing home financing, referencing a rental project with Freddie Mac. While it does not address the issue of credit cards or business/consumer deals, it does speak to opportunities you might pursue in the mortgage arena if the population base warrants it. Again though, how many in your area demand this strict of compliance with the rule? In my quick reading I saw many interpretations of the faith rule that allowed for the use of bank products as they are traditionally offered, much like my clients must have been doing.

Faith & Economics
What Happens when religious law prevents people from living the 'American dream?'
by Steve Veldheer
Staff Writer

Thousand of Americans buy a new home everyday, often considered part of the "American dream."


When shopping around for a mortgage lender, potential buyers always try and find the lowest possible interest rate around. But for many Americans, any amount of interest is considered too much.


Muslims, according to Islamic scripture, are forbidden from paying or receiving interest or riba, on a loan. As a result, financing major purchases, such as a home, becomes somewhat of a dilemma for many Arab-Americans.
"The paying of interest is a serious matter in the Quaran," said Imam Mohamad Ali Elahi, of the Islamic House of Wisdom in Dearborn Heights. "It is seen as a war against God."


In the Islamic faith, paying any amount of interest is considered to be a form of slavery, said Elahi.
But while the Quaran states for Muslims to "give up what remains of your demand for usury," many modern believers have adjusted to the western economic system, which involves paying interest on a loan.


"One modern opinion is that the paying of reasonable interest is not so bad," said Elahi. "Still a majority of Islamic scholars still feel interest in bad - that it's not fair.


"But the question remains, how should Muslims deal with (paying) interest while living in a western economy?
"Well, if in an emergency situation, if something is a necessity - like with buying a house - there might be an exception to the rule.


"But ideally, (paying interest) is not something one should do."


The dilemma of repaying a loan with interest is not unique to Muslims living in "western" economies, though. Most countries in the Middle East have also adopted a western model of banking, said Elahi.
"People have the same problems living in Islamic countries," he said. "In a world economy such as this, everyone deals with 'the bank,' and every bank deals with every other bank around the world. Banks everywhere have to adopt the same systems."


And that means payment of interest.


So what options does a practicing Muslim have when buying a house?


One option, as mentioned before, is to take the "it's not so bad" approach, apply for a traditional mortgage and pay the interest.


Another option would be to pay cash for all purchases, which many practicing Muslims do.


And yet another option would be to utilize a bank which offers Islam-friendly loans.


One area bank, Standard Federal, recently partnered with the Federal Home Mortgage Corp. (Freddie Mac) and United Mortgage of America to develop a home-buying initiative for Muslims in the Detroit area.


Howard Lax, an attorney at Lipson, Neilson, Cole, Seltzer and Garon, was the individual responsible for coordination the new initiative.


"I had a client who approached me to see if there was something we could do to help Muslims finance a home without having to pay interest," said Lax.


Shortly after being approached, Lax, who has been working in the mortgage business and with a number of banks since 1985, sat down with an Islamic law expert and representatives from Freddie Mac to figure out a way for Muslims to more easily finance a home without violating Quranic Law.


What they came up with is a rent-to-own program that eliminates the need for interest payments on a home loan.
"It's a two step process," said Lax. "There are actually two sets of transactions involved.


First, the consumer comes in…they're assessed and then told how much of an amount can be financed for a home. They can then go out with a Realtor or whatever and find a home they wish to purchase."


The home then goes through the usual processes of assessment and appraisal. Once it has been approved, a limited liability company (LLC) will get a loan from Standard Federal and purchase the home.


The potential buyers will put a down payment on the home, and then enter into a 10-year lease with the LLC that bought the home. The money paid throughout the course of the ten-year lease period will go toward covering the LLC's mortgage, tax and insurance payments.


The second step in the purchasing process come at the end of the 10-year lease period. At the end of the 10 years, the potential buyer will have the option to buy the home out-right, or renew the lease.


"Since there is a middle man involved in the purchase of the home, the buyer will end up paying more money in the long run," said Lax. "But the program is set up to offer (Muslims) the advantages of home ownership without paying interest."


Elahi is optimistic about such a program being introduced into the American Islamic community.
"This is a very good approach to a serious problem," he said. "It'll make it easier for the Islamic people to buy a home with more comfort."


However, it might be argued that the buyer really is paying interest on a loan, and the lease payments are just a "technical cover-up."


"Some might say it is just covering up something and calling it something else," said Elahi. "But really a lease is not forbidden.


"In Islam, if there is something forbidden, there should always be something allowed."


United Mortgage will start accepting applications for the program in two to three weeks, said Lax, and in about six months, Freddie Mac will assess the program's success.

The articles I was reading referred to a very strict interpretation of exactly that word "usury". If one wanted to get terribly strict about "interest" apparently the phrase could be construed to lean against the payment of interest. Of course the joy of the bible is that the same phrase can (and is) often translated 42 different ways to suit the occasion

interesting Topic .
in Jordan among the 23 local banks , we have Only 2 that work according to Islamic Law and the rest are western styled.

back to the usury and the Church , you Might be surprised to Know that banning usury was the reason behind How many laundering started .

here is the story :

Efforts to curb the laundering of criminally derived incomes have only recently assumed a prominent position on the priority list of law enforcement agencies; the very term "moneylaundering"is of quite recent origin. Yet it is safe to say that as long as there has been a need,whether for political, commercial or legal reasons, to hide the nature or the existence of financial transfers, some sort of money-laundering has occurred.In medieval times when the Catholic Church banned usury as not only a crime (rather like the status achieved by drug trafficking today) but also a mortal sin, merchants and moneylenders intent on collecting interest on loans engaged in a wide variety of practices that anticipated modern techniques for hiding, moving and washing criminal money. The central objective was to make interest charges either disappear altogether (hiding their existence) or appear to be something other than what they were (disguising their nature).
This deception could be accomplished in several ways. When merchants negotiated payments over long distances, they would artificially inflate the exchange rates sufficiently to cover interest payments as well. They would claim that interest payments were a special premium to compensate for risk. They would make interest appear to be a penalty for late payment, with lender and borrower agreeing in advance that such a delay would take place. They would pretend that interest payments were really profits by using something similar to today’s "shell companies" (companies that have no real operational role). Capital would be lent to the company and then taken back again, supposedly in the form of profits rather than of interest on the loan, even though no profits had really been made. All of these tricks to deceive the Church authorities have their rough equivalents today in the techniques used to launder criminal money flows.


Source :Financial Havens, Banking Secrecy and Money Laundering /United Nations Office for Drug Control and Crime Prevention 1998

If you look at this news release on the Freddie Mac web page from a year ago, you will find references to a program that was approved but never got off the ground due to pricing issues. Call me at (248) 649-7200 if you need more information.