ABA Banking Journal - November 2007 - (Page 54)

ETHNIC MARKETING the requirements of religious law and public law, according to Ranzini. This is no mean feat. Any new player who attempts to cut corners or take easy ways out risks the displeasure of an ethnic community that Ranzini says is well-educated and that “doesn’t have patience for nonsense.” “If what you come up with is not Islamic,” says Ranzini, “you’re done, because after that people won’t talk to you.” Even then, some products required very careful deliberation by the scholars the bank engaged. Take deposits. Islamic law positions the deposit as a sum at risk in a business venture with the bank— think “profit sharing.” While business deals do go wrong, wiping out investments, that runs into U.S. regulation. FDIC rules bar banks from offering accounts that can pay less than 0% interest, implying a potential loss of principle by the saver, Ranzini explains. “That rule actually gives the Islamic scholars some difficulty,” says Ranzini. However, he says, the rule has been deemed acceptable because some practices are permitted under Shariah if they are “of necessity.” One ground for this finding is if secular law mandates such a practice or condition. ISLAMIC BANKING RESOURCES Bankers interested in details of University Islamic Financial Corp.’s programs can explore these at length at the bank’s special website, www.university-bank.com/IslamicBanking/IBDmain.htm The fatwas reproduced there are of special interest. ABA members who wish quick access to regulatory letters and commentary regarding Islamic banking can find them at the following members-only link: http://www.aba.com/Members+Only/Regulatory/specialLending.htm Handling people factors Cultural differences have been a challenge for University Bank’s Islamic program at various stages. At the beginning, when the bank let its staff know what was coming, some employees objected. These workers opposed reaching out to the Islamic community, and some actually quit. Ranzini says he answered accusations that the bank was promoting Islam simply: “No, we’re meeting a need.” Early on, Ranzini found that the Islamic operation, now totaling 11 employees, couldn’t function effectively as a side activity of the bank’s main operation. The first mortgage officer, working on Islamic home financings part-time, built a $1 million portfolio, but Ranzini became convinced that “if you don’t have a dedicated full-time team you won’t succeed.” All of the bank’s sales associates working on this program are Muslims. And the bank quickly learned it had to grow its own staff. 54 NOVEMBER 2007/ABA BANKING JOURNAL “You can’t find 100 Muslim bankers in the U.S.,” says Ranzini. “You don’t have a lot of mainstream bankers who are Muslim, because everything about an ordinary bank is haram (forbidden and unlawful), versus halal (lawful, permitted). The bank began hiring Muslim employees and training them in financing methods that comply with Shariah. The dedicated staff work in a separate area, and observe some different holidays than the rest of the bank’s staff. All concerned had learning to do. “In the beginning, I made a lot of mistakes,” says Ranzini, using traditional bank terminology, for instance, from force of habit. “I’m pretty good now, but it was tough. It’s our mindset. But your credibility can go down the drain in a second.” Ranzini hopes to reach the large Islamic community in the Washington, D.C., area. The next batch of trainees will be assigned to an office there. University Islamic Financial has gained a large portion of its deposits from this out-of-state market, “so we’re going to our strength,” the banker explains. A gradual pathway to profit Ranzini admits that Islamic banking is a very different, and ongoing challenge. Because the financings and the deposit gathering must be firewalled from the bank’s ordinary lines of business, ALCO challenges rise above the norm. Ranzini notes that if growth of the bank’s Islamic financings slowed, it would have to slow down the growth of Islamic deposits, lest it find itself without an acceptable place to put those funds. And Bank Secrecy Act compliance hits a level that many bankers, already beset with BSA headaches, would cringe to consider. “We’ve got to be above average,” says Ranzini, “because we are going to attract more customers who have the potential to be ‘of interest’ to the law enforcement community.” The bank maintains tighter con- trols and provides much more training than is typically the case, Ranzini says. “Reputation risk is a big issue for us,” the banker allows. He adds that the first tab on his own internet browser is the federal Office of Foreign Assets Control website. Is the game worth all the effort? After five years working at Islamic banking, the only overall profit that University Bank has seen resulted from the 20% stake sold in the subsidiary, for $3 million, reflecting a 50% premium over book value. In 2006, the bank’s holding company reported a loss, due in part to a costly restructuring of its deal with its Islamic banking consultant, and acquisition of some of its operations, in order to keep more of the program’s profits in the long-run. But Ranzini is far from discouraged. “I’m not in this for short-term profit,” says Ranzini. “This is a long-term play.” In 2008, Ranzini hopes the bank’s heavy investment of effort and funds in Islamic banking will begin paying off in the form of wholesale originations of Shariah-compliant financing for other institutions that don’t wish to go through the same learning curve. “Right now we’re working on getting our own ducks in a row,” he says. “In every state we wish to expand to we have to come up with state-compliant documents and then we have to go back to the scholars.” Ranzini notes that 15% of the bank’s revenue comes from Islamic banking activities today, and two-thirds of its residential mortgage originations come from its Islamic operations. He says that, like some of the processing activities the bank specializes in, this offsets its location in Michigan, a state whose traditional industries have been suffering. “If I stuck to traditional banking in Michigan, what kind of results would I have?” Ranzini asks. “The economy just stinks.”BJ www.ababj.com/subscribe.html http://www.university-bank.com/IslamicBanking/IBDmain.htm http://www.aba.com/Members+Only/Regulatory/specialLending.htm http://www.ababj.com/subscribe.html

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

ABA Banking Journal - November 2007 Contents Editor’s Column Briefing: Good News for Mortgages Sleight of Mind N.Y. Hiring Bonanza May Be Bane Snapshot: A Look at Held-For-Investment Loan Growth ABA Resources ABA Chairman’s Position “The Moose Bank” Thrives on Manufactured Housing Loans Finding the Middle Way for Your Bank’s Retirement Program Pass the Aspirin Cover Story: Self-Service Steps Up DIY U.K. Style Marketing to Millennials Getting Real With “Gen Wired” Ethnic Marketing: Disinterested Banking Getting Good at Global Sourcing Case in Point Turn Compliance on It's Head Banker’s Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - November 2007

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.