AUSTIN, Texas – Predatory lending, critics blast, targets the poor, charging exorbitant interest rates with sticky conditions worded in the fine print. Its roots can be traced back thousands of years, so rampant that many of the world's religions banned the practice of usury or interest. In particular, Muslims who wish to conduct their financial affairs rely on the Shari'a, or Islamic law, laid down in the Quran 14 centuries ago. For them, above all else, the payment or receipt of interest is prohibited in large part because it preys on the destitute. Some Muslim economists say both credit unions and Islamic financial institutions, have their roots in the widespread desire for ethical banking. All three of the world's monotheistic religions – Judaism, Christianity, and Islam – have strict prohibitions against usury. While a number of Islamic banks exist in the United States with many of them upholding the ban on usury, there aren't that many Muslim credit unions to do a comparison to their counterparts. At least one institution, Pioneer Muslim Credit Union in Houston, has a healthy unsecured loan portfolio, respectable shares and deposits and investments but it's unclear whether members actually receive interest or if those payments are earmarked elsewhere in accordance with Islamic Shari'a. When contacted by Credit Union Times, executives declined to be interviewed for the article. According to the credit union's last financial report filed with NCUA in December 2001, Pioneer had $20,550,719 in total outstanding loans with the majority being unsecured loans. The credit union also had $3 million in share certificates paying 9.75% in interest and $161,674 in IRA/KEOGH accounts paying 7.50% in interest. Chartered in 1981, Pioneer has 3,400 members and $25 million in assets. "They are regulated like any other credit union in Texas," said Harold Feeney, Texas Credit Union Commissioner. "It appears that they are making a return on all their investments and loans." Islam is the fastest growing religion in the United States with six million Muslims here, outnumbering Episcopalians, Lutherans, Presbyterians, the United Church of Christ and many other Christian denominations, according to the International Population Center at San Diego State University. Those numbers have spurned a growing number of groups aiming to meet Muslims' unique financial needs. What poses a challenge for some is doing so while sideswiping usury. Much debated by Islamic scholars, usury seems malleable depending on the transaction, but others say that certain conditions reject any attempts to nuance this prohibition by interpreting it to apply only to excessive interest. Some schools of thought have interpreted usury to mean any fixed or guaranteed interest payment on cash advances or on deposits. By far, the financial product that has eluded some Muslims is the mortgage loan. It has literally left some with the only option of renting apartments until they can either pay for the home in one lump sum or work through a firm that has an arrangement that circumvents the mountain of interest typically accumulated over a standard 30-year payment period. One of the pioneers is MSI Financial Services in Houston. Under its Shared Home Appreciation in Rent & Equity or SHARE system, a homebuyer enters into a partnership agreement with the company to buy a home. The buyer puts down at least 20% of the cost, with MSI contributing the remainder. The buyer then leases MSI's portion of the house in a rent-to-own transaction that lets the buyer build equity in the home. Unlike a conventional mortgage, these rental payments can move up or down from year to year to reflect actual market conditions. If the buyer decides to sell before the house is paid off, MSI and the buyer split the sales proceeds based on the percentage owned by each side. The same is true in case of default. "Since we don't work with banks, we rely on Muslim investors to build capital so that we can help with home ownership," said Adnan Mirza, MSI financial consultant. Started in 1986, the SHARE program has been successful for Muslim homeowners in a number of states including California, Illinois, New York, New Jersey, Texas and Maryland. MSI has yet to have anyone default on a loan. Should consultants see a default situation looming, Mirza said "we try to sell the house as soon as possible and whatever we get out of it, we split the amount with the homeowner." Another sophisticated financial group, Samad Group in Kettering, Ohio has a conglomerate of businesses including insurance, hotels, a nationally-chartered bank proposal and its Islamic Home Finance program. The mortgage's concept is called "lease to purchase." The lease period can be 15, 20, 30 years or the house can be purchased in a shorter time period. The monthly lease payments will be called rent and includes real estate taxes and insurance. A portion of the rent payment can be considered by the IRS as a tax deduction. A 20% down payment is required and since there is no promissory note, no debt is involved. "The architects of the contract were guided by three basic principles," said Bashir Ahmed, president/CEO of Samad Group. "To create a contract for interest-free financing, to structure the contract so that it upholds the basic rights, duties, and obligations found in the traditional home mortgage, and to retain the income tax deductibility benefits of the traditional home mortgage." So far, the program has launched in California and Connecticut and is available to qualified applicants regardless of spiritual beliefs, Ahmed said. Unlike mortgages, credit cards have little room for negotiation simply because of the interest compounded. Muslims are strongly encouraged to pay off the full amount of the card before interest accrues. "Money is only a medium of exchange and it should not be used to produce more money", said Abdel-Hameed Bashir, assistant professor of applied economics at Grambling State University. "Human effort, sacrifice, and risk-taking are what add value." "The basic principle that underlies Islamic attitudes toward economics and finance is that of shared risk," Bashir said. "Risk should be shared between the lender and the borrower. The lender shares in any profits gained by the borrower and conversely in any loss the borrower incurs." Bashir emphasized the lender consequently can be expected to take a greater interest in the success of the enterprise to be undertaken. "It is unfair and immoral, Muslims believe, for the lender to be guaranteed the repayment of capital plus interest regardless of the outcome of the enterprise for the borrower," he explained. Within the fulfillment of upholding the tenets of the Quran, the task of forming a credit union that satisfies its members can be a daunting one. Two years ago, a number of Muslim groups in Dallas set forth to open a credit union that would offer products and services to the large Islamic community here. Ahmad Sbaiti, president/CEO of Alshall International USA in Dallas, said while the effort has lost steam, he's still trying to get support for the yet-to-be-established credit union. "We're still working on one. We were active for awhile, but someone came up with a `better' idea of having an Islamic bank and the credit union idea was abandoned," Sbaiti said. Meanwhile, while Dearborn Village Community Credit Union is small with just 2,400 members and $10.5 million in assets, the area it serves is the third largest home to Arabs in the nation, said Terry Denmark, Dearborn's president/CEO. While the credit union offers traditional products and services that pay and receive interest, Denmark said for the most part, many of its Muslim members are "not overly concerned about interest," but at a meeting with local Arab leaders, when he relayed to an imam that the credit union does distribute dividends to its members, the religious leader replied "you would be very wise to do that." For his part, Denmark has taken sincere strides to get to know the Islamic customs and beliefs. He relied heavily on two University of Michigan college students from Pakistan and Lebanon to explain customs and act as a conduit when meeting with Islamic leaders. At one such meeting, Denmark wrote down a list of 25 questions to ask the local imam, specifically to inquire about the interest issue. Quite simply, the imam said if a Muslim is a firm believer in the Quran, he would not pay or receive interest. Dearborn is a diverse community with half of the city's residents being Arabic and the other half made up of African-Americans, Hispanics and Caucasians. The credit union membership makeup is a direct reflection of the area, Denmark said, including the three Arab employees out of seven that work here. In other parts of the world, Islamic credit unions are becoming the alternative for those shut out by large banks. The World Council of Credit Unions is currently involved in assisting officials in Indonesia to bring cohesion to the 3,000 credit unions that exist there. The majority operate under Islamic law and offer mainly loans and deposit products to members. With 220 million Muslims, Indonesia is the largest Muslim country in the world. While roughly 450,000 persons belong to credit unions or Bait `l-Mal wa `t-Tamwil (BMTs) with $33 million in total assets, the country is lacking a structured organization similar to CUNA to represent cooperative interests, said Curtis Slover, WOCCU's project development and technical services officer. "While there is cooperative law, there is no functioning regulatory law so we're literally starting from scratch in developing a model," Slover said. "Much of what we propose might depend on whether some of the smaller BMTs are willing to consolidate with larger ones because right now, it's the wild, wild west out there and there's no sheriff." BMTs started as a government project 10 years ago relying mostly on donated funds to operate, but that capital has since run out and conversion to full-fledged credit unions soon followed. Slover has traveled to Indonesia on several occasions and is in the process of setting up a proposal to submit to federal agencies here and abroad for potential funding sources. Meanwhile in the States, credit unions continue to be looked to as the model Islamic financial institution because of its "member as owners" philosophy. While this unique movement lags behind its bank counterparts, some predict that the next few years will reveal steady progress. Bashir said progress starts with a mutual understanding. "The credit union movement and the concerned populations must first learn about each other," Bashir said. "They must then seek to identify areas of common ground and mutual interest. Once this is accomplished, they can proceed to assess needs and identify actions to fulfill those needs that they can jointly undertake." -

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