Michigan Bank Discovers The Need For Islamic Finance Products
RENEE MONTAGNE, HOST:
When you get right down to it, a bank is basically a store that lends money - and charges interest, of course. Sally Helm from our Planet Money podcast takes us to one bank that tried to lend money without interest.
SALLY HELM, BYLINE: Stephen Ranzini runs University Bank, a community bank in Michigan. And he tries to be a positive force in his area. But a few years back, a customer walked into Ranzini's office and said, your bank isn't serving my community. You don't have the products that I need. And Ranzini said - what do you mean?
STEPHEN RANZINI: I just find that very hard to believe. I mean, we have everything - credit cards, debit cards. I mean, what is this products that we don't have? I don't understand it.
HELM: And the customer told him - all of your products have interest. I don't believe in interest. He was Muslim. And like many Muslims, he believed that the Quran prohibits interest. You shouldn't pay it. You shouldn't receive it, which makes it really hard to use a conventional bank like the one Ranzini was running.
RANZINI: So when somebody comes in and just challenges a core belief that all banking must include interest, (laughter) it just blew my mind.
HELM: There are a lot of Muslims in Michigan, where Ranzini's his bank is. And he decided, I'm going to try this - try to do what a bank does, but without charging interest. This was not easy. Take home financing, mortgages. If you're a bank, you can't just make a bunch of interest-free mortgages. You wouldn't make any money.
There are banks in the Muslim world that have thought about this, and one thing you can do is replace interest with something like a rent payment. The customer, the person who wants to buy the house, doesn't own it right away. Instead, the bank buys the house and puts it in a legal entity called a trust. Then, the customer makes monthly payments for, say, 30 years. Each month, they own a little bit more of that trust until, finally, the house is all theirs. Ranzini started offering this, but he ran into some problems.
RANZINI: Under Michigan law, you can't operate a trust unless you have a trust license, so we had to actually put them under Delaware law.
HELM: There were lots of regulatory issues like this. Adopting Islamic finance to U.S. law is tough, and there were other problems, too. This was in 2002, pretty soon after 9/11. And when Ranzini started doing this, some of his employees quit.
RANZINI: Yeah. They just objected, philosophically, to us helping Muslims.
HELM: But Ranzini kept going. And while a lot of Muslims are totally fine with interest, there was a pretty big market for what he was offering. Iltefat Hamzavi is a doctor in Michigan. And he's a practicing Muslim. He wanted to give his family a nice home. And he was excited to be one of the first customers for Ranzini's new product. His wife, she was a little bit more skeptical.
ILTEFAT HAMZAVI: So we were in the room signing. And she's like - how many times have they done this? And I was, like, including our time, twice. So she puts her pen down and is looking at me, like - are you serious?
HELM: But it worked. And Hamzavi says it felt good to finance his home without violating religious rules. Now, not all Muslim scholars are OK with this. Some say this is just interest by another name. It's a religious loophole. But Hamzavi says it didn't feel like a loophole to him. It felt like a real way to reconcile his identity as an American and as a Muslim.
HAMZAVI: I'm part of the U.S. bank system. I'm doing something that is religiously compliant. And I'm doing right by my family by giving them a house in a good neighborhood.
HELM: Since they got started, Ranzini's bank has financed 850 million dollars' worth of homes with their Islamic products. Sally Helm, NPR News.
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