How US Islamic Financial Institutions Provide Interest-Free Services

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America's increasing Muslim population is creating a growing market for goods and services designed to meet its specific needs. Such products range from ritually-slaughtered halal meats to high-tech digital watches which remind the wearer of the correct times for prayer. New services include this country's first Islamic financial institutions.

Islamic law, in principle, strictly prohibits the earning of interest, referred to as riba, from financial transactions. Since interest is a vital component of the American financial system, it is difficult to imagine how an American Muslim can avoid being involved in such routine transactions as opening an interest-bearing savings account, or purchasing a home, car or other necessities on credit. In the past decade, however, a number of institutions have been created to provide Muslims with economically viable alternatives within the strictures of Islamic law.

Three of the most successful Islamic financial institutions in the US are MSI Finance Corporation, in Los Angeles, CA; BMI Inc., in Secaucus, NJ; and the North American Islamic Trust (NAIT), headquartered at the central offices of the Islamic Society of North America in Plainfield, IN. These organizations provide investment activities operated on the principle of musharaka, or shared profits, in which money earned from co-owned property or investments is divided between the financial institution and the customer.

MSI Inc. has enjoyed the most rapid growth. Founded in 1985 on an initial investment of $45,000, today the organization boasts assets of $4.35 million, a 200 percent increase over the previous calendar year. MSI operates much like a credit union, as all investors are shareholders in the company.

Over 50 percent of MSI's investments are in construction financing, in which profits are shared between MSI members and Muslim developers. In recognition of the need for interest-free home financing, 36 percent of MSI's funds are invested in the SHARE (Shared Home Appreciation in Rent and Equity) program,

Shared Equity Differs from Mortgage Payments

The difference between this system and a household mortgage is that clients and MSI jointly purchase a home from the builder or seller. Then the client makes payments to cover rent on and buyout of the MSI-owned portion. While this system does not normally provide a savings over conventional home financing, it does not involve the payment or receipt of interest.

For customers interested in obtaining a car, MSI offers a short-term auto leasing program, which accounts for 10 percent of its investment portfolio. MSI is involved in international export-import transactions as well, and is currently a member of the International Association of Islamic Banks.

BMI Inc., also founded in 1985, operates as an investment bank, with customers both in the US and abroad. …