ABA Banking Journal - September 2007 - (Page 38D)

Furthermore, even some investments aren’t permitted. For instance, a Muslim could not invest in a bond mutual fund, Bhatty explains, because the root of the fund’s income is reba. A stock fund might be permissible, but the underlying investments could not touch any forbidden activity. Essentially, for any investment product to be allowable, says Bhatty, “it would have to be a capital gains situation.” As a result of this situation, area bankers find it difficult to serve most of the banking needs of the Somali immigrants. An estimated 75,000 Muslims live in the Twin Cities area, many of them from Somalia. This area serves as home for But acceptability of any banking service can be problematic. As one banking expert explains, there is no central authority, such as a Pope, in the Islamic world, to say what all Muslims may do. University Bank, Ann Arbor, Mich., is one of a handful of U.S. institutions that have set up special Islamic banking and finance operations, for instance, has fatawa—official religious judgments issued by recognized scholars—posted on its special Islamic banking website. (The $89.7 million-asset bank’s operation is a subsidiary of the bank called University Islamic Financial Corp. www.university-bank.com/Islamic For any strict follower of Islam, traditional Western banking products aren’t permitted. In fact, even some investments aren’t permitted. A Muslim could not invest in a bond mutual fund, for instance, because the underlying investments’ income is reba—interest, which is forbidden by Muslim law. many immigrant groups, but the others don’t present this challenge, notes community banker Dorothy Bridges, president and CEO at $121 million-assets Franklin National Bank, Minneapolis, and also vice-chairman of ABA’s Community Bankers Council and a member of the Federal Reserve’s Consumer Advisory Council. Banks can serve the burgeoning Latino population and the immigrants of the Hmong people, one-time mountaindwelling allies of the U.S. in Vietnam, Franklin says, but the U.S. banking system mainstream has difficulty with the Muslim laws. (Some letter rulings have been made for certain limited situations.) With most immigrant groups, she explains, the banks have found that making people comfortable with the U.S. system has often been a matter of getting to know the leaders and elders of their communities, and vice-versa. But in the case of the Somalis, who are considered strict Muslims as a rule, even overseas remittances, are a problem. In this case, it is not a matter of religion, but utility. “There is no legitimate banking system in Somalia,” says Franklin, so Somalis who need to send money back home, as many immigrants do, can’t use typical U.S. channels. Instead, they operate through trusted family and merchant connections—hawallah networks, in other words. So if they have a non-interest-bearing account at a traditional bank, to make overseas remittances they must withdraw their funds and use this alternative. There has been some success among bankers in using leasing to meet business needs of Somalis, where it is deemed acceptable. Leasing, called “ijara,” is one of several formats financial institutions have used to serve the Muslim market. (There are other forms, each with their own names, provided by Islamic or other specialized operations.) Some Somalis have found “rent-to-own” operations acceptable, though consumerists will say that such operations are among the worst deals on from a strictly dollars-and-sense viewpoint. www.ababj.com/subscribe.html Banking/IBDmain.htm.) But even in such cases, a Muslim may not recognize the authority of any particular party issuing such a judgment. Finding a way Farooq Bhatty is a vice-president and business lender in an Associated branch that serves Minneapolis’ West Bank neighborhood, where many Somali immigrants live. He explains that in Muslim countries, “lending” is more a matter of going into partnership, so that the bank’s return is not in the form of interest, but in the form of a share of the profits of the underlying activity. Think of it as a joint venture. Bhatty says that in Muslim countries, savings are often put into tangible forms, such as land, where a return can be gained and yet not come as interest. U.S. banks typically can’t go into partnership with their customers. Instead of lending to Somalis at his bank, Bhatty serves on the credit committees of two community development corporations (neither is bank owned). These are the African Development Center of Minnesota, which made more than $1 million in micro loans in 2006 and which arranged business financing for 44 concerns, and the Minneapolis Center of Community Developers. Bankers from several other banks, including Bridge’s Franklin National, have also served on the African center’s committee. Other organizations, including the City of Minneapolis itself, have set up Shariah-compliant lending programs. Nonbank programs exist in the area for business loans, mortgages, and other purposes. Bank-related foundations have contributed to some of the groups involved. Indeed, the executive director of the African Development Center, Hussein Samatar, is a former Wells Fargo commercial lender. Interestingly, Bhatty says the credit judgment involved in evaluating a Shariah-compliant loan is exactly the same as any other loan. The only difference is in the structure of the deal, such that the lender is paid. BJ ABA BANKING JOURNAL/SEPTEMBER 2007 38d http://www.university-bank.com/IslamicBanking/IBDmain.htm http://www.university-bank.com/IslamicBanking/IBDmain.htm http://www.franklinbankmpls.com http://www.franklinbankmpls.com http://www.adcminnesota.org/index.php http://www.adcminnesota.org/index.php

Table of Contents Feed for the Digital Edition of ABA Banking Journal - September 2007

Contents Editor's Column Briefing: Why Money Sense is a Top Priority Briefing: Sleight of Mind Briefing: Snapshot: What the First Half Tells Us About the Second Half Briefing: ABA Resources ABA Chairman’s Position Briefing: Get Away and Get Ahead: ABA's Banking Leaders Forum Community Banking: Trim the Fat: Winning the "Battle of the Buck" Community Banking: Pass the Aspirin Cover Story: Meeting the Challenge of the "Unbanked" Bank Marketing: Don't Miss the Boom! On the Job: Time to Power Up Your Presentations? Insurance Sales: The Art & Craft of Cross Selling Tech Topics: The Price is Right? Tech Topics: Security: Protect Information First Tech Topics: Hackers for Hire? You Bet'cha Tech Topics: Case in Point: Tellers Scan, Too, at First Federal Compliance Clinic: Adverse Action Clarified The Economy Banker’s Mart To Advertise/Index of Advertisers

ABA Banking Journal - September 2007

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