Two city banks offer devout Muslims a way to buy homes without violating
Dennis Rodkin, Chicago Tribune, 2/6/05
O ye who believe! Devour not usury, doubled and multiplied; but fear Allah;
so that you may be successful.
3-130 Surah Al-Imran Verses
Taj Khan had resigned himself to renting a home for his family of three for
a very long time. Devout in his practice of Islam, the 28-year-old computer
network administrator is particularly concerned about avoiding any business
transactions that entail charging or paying interest.
"Interest is one of the biggest things we are specifically told to avoid,"
Khan says, "so I wasn't going to be able to buy a house. I wanted to buy,
but my religious belief was stopping me."
He was trying to save toward an all-cash purchase, but the pressures of
supporting a young family kept him from putting much away. So Khan figured
he and his wife, Seemab, would go on renting part of his father's Hanover
Park house indefinitely.
"If I couldn't find a way to buy in a religiously good way," he says, "I
would just keep on renting."
Then last year Khan heard through friends about an interest-free Islamic
home-buying program that was launching at Chicago's Devon Bank. Instead of
buying a house and taking a mortgage from a bank to pay for it, under this
program the buyer picks a house, but the bank buys it and immediately sells
it to the buyer at a sizable markup.
The bank calculates its markup based on prevailing interest rates. Thus,
because the total price with markup is the same as what the buyer would
have paid on a 30-year loan with interest, the buyer is agreeing to pay
just as much as a homeowner with a standard mortgage would pay. The
difference is that it's a credit sale for a set total price, not an
But that's only true of the transaction between the home buyer and the
bank. When Devon Bank later sells the loan to Freddie Mac, as many mortgage
lenders do, what it sells is a standard interest-bearing loan, with the
same profit structure for both sides. Essentially, the bank has wrapped a
standard mortgage in non-standard terminology that satisfies Islamic teachings.
Although it might sound like a paperwork trick, it finesses a fine point in
Islamic law, or shari'ah, that makes all the difference to Khan and other
U.S. Muslims who want to own homes but decline to get into any financial
transactions that charge interest.
Khan bought a four-bedroom house in Bartlett last summer, confident that
the purchase was in compliance with his faith because of the structure of
the deal. He picked a house whose price was $295,000. Devon Bank bought it,
and accepted a $60,000 down payment from Khan. His agreement with the bank
calls for 360 monthly payments of $1,338. In the end, with all payments and
the down payment, he will have spent a total of $540,000 for the house.
Had he bought with a standard, interest-bearing mortgage, his 30-year total
would have been approximately the same.
"From a financial standpoint there may not be much difference, but what
matters is the way you conduct the transaction," says Salman Ibrahim, a
member of the Shari'ah Supervisory Board of America, a West Rogers Park
panel of 10 Islamic scholars that monitors financial products targeting
Muslims and gave its approval to Devon Bank's program. "The taste of a
chicken does not change whether it is zabiah [slaughtered according to
Islamic practices] or non-zabiah; what changes is the way you slaughter it."
Two Chicago banks -- Devon Bank and Broadway Bank, both small North Side
institutions in neighborhoods where large numbers of Muslims live -- both
started shari'ah-sanctioned home-buying programs in 2004. Neither bank's
officials will say how many Islamic home transactions they have conducted,
though both say the programs have been received well by their customers.
"For us, it's a service issue," says Demetris Giannoulias, chief financial
officer of Broadway Bank. "There is a demand for this kind of thing in the
community we serve, and if it requires us to do a little extra amount of
service to make home buying more palatable to the customer, we'll do that."
In January the larger of the two banks, Devon Bank, took a big step forward
when it announced that national mortgage investor Freddie Mac will buy its
Islamic home deals, giving the bank the leverage to offer its Islamic
products in other states. By mid-January, Devon Bank had begun offering the
products in 10 states outside Illinois, with more states to be lined up
soon, according to the bank's corporate counsel, David Loundy.
A measure of the pent-up desire for this religiously appropriate method for
Muslims to buy houses: "When he heard about it, a guy from Connecticut
started calling us three or four times a day until we got approval there
and could say yes to him," says Nazir Gurukambal, Devon Bank's vice
president in charge of the Islamic home-buying program. (The bank is
awaiting final regulatory approval to offer its program in Connecticut.)
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