This Islamic mutual fund is a 1-percenter even Occupy Wall Street would love

Following Shariah law — and thus steering clear of bank stocks — the Amana Trust Income Fund has been a stellar performer

By Jason Kephart

April 30, 2012
 InvestmentNews
 
What do a Muslim-guided mutual fund and the Occupy Wall Street movement have in common? A strict aversion to financials, among other things. In the fund's case, this aversion has led it to the top 1% of returns amongst large-cap mutual funds over the past 10 years.

The $1.4 billion Amana Trust Income Fund Ticker:(AMANX) has an annualized return of 8.92% over the last 10 years, which ranks it in the top 1% of large-cap-blend mutual funds, according to Morningstar Inc.

Part of the secret of the fund's success: It does not invest in financials or any businesses that generate interest from loans. That prohibition is based on Shariah law, which guides the business principals of Islam. The Quran, the basis of the Islamic faith, prohibits Muslims from paying or receiving interest for lending money, which is of course the basis of the banking system today. The fund also avoids businesses that profit from alcohol, pornography or gambling.

By not being invested in financials, the fund was able to avoid the worst of the stock market's drop in 2008. As the S&P 500 was dragged down 37% such firms as Lehman Brothers Holdings Inc. and Bear Stearns & Co. Inc., the fund's net asset value fell 23.4%, the best showing among large-cap funds that year.

Though the fund is based on Islamic principals, the fund is open to all investors. The Occupy Wall Street movement is returning Tuesday, and some advisers are attributing the protests to an increase of interest in socially conscious investing.

As with last year's protests, big banks again are expected to be a focal point.

“Four years after the financial crisis, not a single of the too-big-to-fail banks is smaller; in fact, they all continue to grow in size and risk,” the Occupy Wall Street press office wrote to Bloomberg News in an e-mail.

Islamic Banking, a Market with U.S. Potential, Hampered by Politics (American Banker)

Friday, June 10, 2011

By Robert Barba

Islamic finance is growing, but politics, and perhaps prejudice, might be hamstringing this business in the United States.

In the past few years bills have been introduced in at least 20 states to forbid courts from invoking foreign laws in rulings. Proponents have touted the bills as a way to prevent Sharia, a code derived from Islamic law, from becoming the law of the land — a risk that many attorneys say is nonexistent. Arizona, Louisiana and Tennessee have passed "Sharia ban" laws, which critics call a way of scoring political points by exploiting anti-Muslim sentiment.

It is unclear whether those laws would directly affect the growth of Islamic finance, which follows the tenets of Sharia law, such as a ban on paying interest. But at the very least, the political climate for Muslims is certainly not fostering a welcoming environment for what experts call an emerging market.

"The U.S. is behind. There is a strong and rapidly growing Muslim population," said Steven Watts, a partner with KPMG's financial services consulting practice in Toronto. "The holdup seems to be largely political, but it is to the detriment of the U.S."...

The United States began to lag in Islamic finance after the 9/11 terrorist attacks, she said.

"Europe and other parts of the world decided to increase funding to study Islamic finance. Generally, the governments wanted to actively watch it and said they were going to be more involved and interested," Hunt-Ahmed said. "In the U.S., funding got cut and the sector became marginalized."...

Watts said there are more opportunities, namely "ethical" investments that avoid putting money in gambling or alcohol and could appeal to Muslims and non-Muslims alike.

However, Sharia-compliant mortgages (which are permissible under Islamic law because they are structured as lease-back or co-ownership arrangements) are a great entrance to the Islamic finance world, he said...

"Passing laws to ban Sharia when we have American soldiers in two Muslim countries and bases all across Europe where there are large minority Muslim populations is an ill-considered idea," Ranzini said. "The people that are hyped up about this issue are just very uninformed."...

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Khutbah/Sermon: Understanding and Defending "The Shariah" - by: Hussam Ayloush

What is Shariah and what are its foundations and purposes?

Why is Shariah attacked? Who is behind those attacks?

Can a good Muslim who follows the Shariah also be a good American?

Is the Shariah opposed or a threat to the US Constitution?

Find out. (English part begins after 3 minutes into talk)



Khutbah: Understanding and Defending "The Shariah" by Br. Hussam Ayloush from Islamic Institute of Orange Cty on Vimeo.

3 Things About Islam (A good video in response to a popular anti-Muslim hate video)

Omar Baddar produced this video in response to a popular video with the same title which spreads misconceptions about Islam in an effort to promote fear and suspicion of Muslims.

Muneer Awad of CAIR -OK Discusses Okla. Shariah Ban with Rachel Maddow

Islam and Shariah as the new red menace?

Washington Post
By Eugene Robinson
Tuesday, September 21, 2010

Boy, I really hate it when American judges try to impose harsh Islamic sharia law. You know, with all those grisly lashings, stonings and beheadings. What's that you say? No such thing is happening, and you wonder where I got such a crazy idea? Why, Newt Gingrich told me.

On Saturday, speaking at the conservative Values Voter Summit, Gingrich issued a thunderous call for action against an imminent threat that exists only in his fevered imagination -- or, perhaps, in his political machinations.

"We should have a federal law that says sharia law cannot be recognized by any court in the United States," Gingrich declared, to a standing ovation.

Okay, but would this include Judge Judy? Because I've always suspected that when she gets really mad, and she snaps the heads off both the plaintiff and the defendant, she might be slipping a little sharia into the American subconscious -- you know, preparing an unsuspecting nation for the real deal. Maybe we need another law that covers fake judges on daytime television, with punishments that begin with flogging.

But seriously, folks, Newt says we have to halt the insidious encroachment of sharia law, and we have to halt it here and now. In July, speaking at the American Enterprise Institute, he went on at great length about the supposed sharia menace, which he sees as part of a "stealth" campaign to impose Islam on all of us.

"Stealth jihadis use political, cultural, societal, religious, intellectual tools; violent jihadis use violence," Gingrich said at AEI. "But in fact they're both engaged in jihad, and they're both seeking to impose the same end state, which is to replace Western civilization with a radical imposition of sharia."

He threw in a perfunctory disclaimer -- that there is "a sharp distinction between those Muslims who live in the modern world and those Muslims who would radically change the modern world" -- and then proceeded with a speech that essentially paints Islam as the new Red Menace. The "stealth jihadis," I suppose, must be like the "known communists" on the list in Sen. Joseph McCarthy's hand.
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Along the way, in the July speech, Gingrich painted liberals as a bunch of fellow travelers. "How we don't have some kind of movement in this country on the left that understands that sharia is a direct mortal threat to virtually every value that the left has is really one of the most interesting historical questions," he said.

Where to begin? First, I guess, by stating the obvious: There is no left-of-center movement dedicated to fighting the steady, stealthy insinuation of sharia into America's legal system because no such thing is happening. Gingrich invents an enemy and then demands to know why others haven't sallied forth to slay it.

Gingrich and the Islamophobes have found one solitary case to bolster their "sharia is here" theory. In June 2009, a family court judge in Hudson County, N.J., denied a restraining order to a woman who testified that her husband, a Muslim, had forced her to have non-consensual sex. Judge Joseph Charles Jr. said he did not believe the man "had a criminal desire to or intent to sexually assault" his wife because he was acting in a way that was "consistent with his practices."

The judge was clearly in error, as a state appeals court two months ago reversed his decision. The man's religious beliefs, the court ruled, do not exempt him from state laws. Thus ended the one and only instance of stealth sharia that anyone has been able to find.

Andrew Silow-Carroll, the editor in chief of the New Jersey Jewish News, cited that case in a column last month blasting Gingrich's "sharia-phobia." Silow-Carroll pointed out two things: First, the system worked -- the judge made a boneheaded call, and he was overturned. Second, our system already allows some civil matters -- but not crimes -- to be settled through other means of arbitration. "Among those alternative mechanisms is the beit din, or rabbinic law court," Silow-Carroll wrote. "Every day, Jews go before batei din to arbitrate real estate deals, nasty divorces and business disputes."

If Newt were aware of this, would he blow a gasket? Somehow, I doubt it. His objection seems to be faith-specific.

And his purpose seems to be political. If Muslim-bashing draws a rise -- and apparently it does -- then he's not going to be outdone. Watch out, Judge Judy. He may be coming for you next.

eugenerobinson@washpost.com

NY Times: Why Shariah?

New York Times
By NOAH FELDMAN
Published: March 16, 2008

Noah Feldman, a contributing writer for the magazine, is a law professor at Harvard University and an adjunct senior fellow at the Council on Foreign Relations. This essay is adapted from his book “The Fall and Rise of the Islamic State,” which will be published later this month.

...In some sense, the outrage about according a degree of official status to Shariah in a Western country should come as no surprise. No legal system has ever had worse press. To many, the word “Shariah” conjures horrors of hands cut off, adulterers stoned and women oppressed. By contrast, who today remembers that the much-loved English common law called for execution as punishment for hundreds of crimes, including theft of any object worth five shillings or more? How many know that until the 18th century, the laws of most European countries authorized torture as an official component of the criminal-justice system? As for sexism, the common law long denied married women any property rights or indeed legal personality apart from their husbands. When the British applied their law to Muslims in place of Shariah, as they did in some colonies, the result was to strip married women of the property that Islamic law had always granted them — hardly progress toward equality of the sexes.

In fact, for most of its history, Islamic law offered the most liberal and humane legal principles available anywhere in the world. Today, when we invoke the harsh punishments prescribed by Shariah for a handful of offenses, we rarely acknowledge the high standards of proof necessary for their implementation. Before an adultery conviction can typically be obtained, for example, the accused must confess four times or four adult male witnesses of good character must testify that they directly observed the sex act. The extremes of our own legal system — like life sentences for relatively minor drug crimes, in some cases — are routinely ignored. We neglect to mention the recent vintage of our tentative improvements in family law. It sometimes seems as if we need Shariah as Westerners have long needed Islam: as a canvas on which to project our ideas of the horrible, and as a foil to make us look good...

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Prof. Sherman Jackson: Shariah: Between Two Popes

Originally published in: Huffington Post
Author: Sherman A. Jackson
Arthur F. Thurnau Professor of Arabic and Islamic Studies, University of Michigan
Posted: August 29, 2010

While it started out as a minor footnote, opposition to sharî'ah has now morphed into the mantra by which many justify their opposition to the so-called "Ground Zero mosque." If we allow this mosque to go forth, so the logic goes, the next thing you know, all the bars in the country will be shut down (and those infidel lushes flogged!), all the women will be draped in sheets, and Muhammad will replace Jacob as the most popular name in America. Allahu akbar!

While some of this hysteria is clearly being peddled by people who know better, most Americans are probably just engaged in a good-faith attempt to understand and respond to sharî'ah through the only prism they have: their own historical experience. I was recently reminded of this on a visit to Cairo, during which time two popes, one Catholic, the other Coptic, expressed almost mutually contradictory sentiments about sharî'ah. The chasm separating their perspectives related not to their different levels of knowledge about sharî'ah but almost entirely to their differences in historical experience...


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Prof. Sherman Jackson: What Is Shariah and Why Does It Matter?

Originally published in: Huffington Post
Author: Sherman A. Jackson
Arthur F. Thurnau Professor of Arabic and Islamic Studies, University of Michigan
Posted: September 11, 2010

...At the most basic level, shariah is the Muslim universe of ideals. It is the result of their collective effort to understand and apply the Quran and supplementary teachings of the Prophet Muhammad (called Sunna) in order to earn God's pleasure and secure human welfare in this life and attain human salvation in the life to come. While the Quran and Sunna are transcendent and unchangeable, shariah itself is the negotiated result of competing interpretations. In fact, most Muslims tend to speak not of shariah but of fiqh, which literally means "understanding" and underscores the distinction between God's prescriptions on the one hand and the human attempt to understand these on the other. This in turn explains two other unavoidable characteristics of shariah: diversity of opinion, and inevitable change. In Sunni Islam (and to do Shiism justice would require a separate treatment) there are four "schools" of fiqh, all equally orthodox, all equally authoritative. This is because Sunnism never established a single ecclesiastical authority or "church" to decide doctrine. Instead, the only doctrines deemed binding on the community as a whole were those on which the community's scholars reached a unanimous -- not majority! -- consensus. In the absence of this, competing parties would simply have to agree to disagree, as no school or individual -- not even the Caliph or temporal ruler -- could claim the infallible right to impose a doctrine as unassailable truth.

As for change, the rules of shariah are divided into two categories: religious observances (prayer, fasting, etc.) and civil-criminal matters (marriage, sales, adultery, jihad, etc.). While religious observances are relatively static and fixed, the rules on civil-criminal matters are subject to change in accordance with circumstances. Here, in fact, we come to a fourth important feature of shariah: in addition to interpreting scripture in order to apply it to reality, shariah also includes the attempt to process reality to determine how scripture, Prophetic teaching and the cumulative tradition of deliberation would have one respond to it. In this capacity, shariah may end up sanctioning, or even including, all kinds of ideas and institutions that were not dictated by scripture. For example, there were no domes, schools of fiqh or minarets in the Prophet's Arabia. Likewise, the fact that there was no democracy or "human rights" does not automatically render these "un-Islamic." In short, shariah includes the attempt to proffer God-conscious responses to an ever-changing reality. And in this capacity, many of its rules are subject to change with changes in the circumstances to which it seeks to respond.

Having said all of this, shariah is not just "rules." While the common translation, "Islamic law," is not entirely wrong, it is under-inclusive, for shariah includes scores of moral and ethical principles, from honoring one's parents to helping the poor to being good to one's neighbor. Moreover, most of the "rules" of shariah carry no prescribed earthly sanctions at all. The prescriptions covering ablution or eating pork or how to dress are just as much a part of shariah as are those governing sale, divorce or jihad. Yet there are no earthly punishments prescribed for those who violate these dictates. Like the bulk of shariah's "rules," reward and punishment in these areas are the preserve of God in the Afterlife.

Unfortunately, many Americans have been led to believe that shariah equals not only rules but criminal punishments -- floggings, for example. Three quick points: First, criminal sanctions constitute a tiny sliver of shariah. Of the 1,081 pages of the two-volume Arabic text from which I studied shariah, only 60 pages were devoted directly to criminal sanctions! (Jihad, incidentally, took up only 19.) Second, the criminal sanctions of shariah did not emerge as the property or instrument of the Muslim state but functioned in fact to impose limits on the use of state power. Third, the punishments for criminal behavior cannot be separated from the evidentiary rules -- equally shariah! -- that provide for their application (e.g., multiple eye-witnesses). In practical terms, in other words, short of confession, rules on such things as adultery or fornication function almost entirely as moral exhortations. God-consciousness spawned by shariah, not fear of being punished, sustains these ideals. Of course, many Americans will object that such issues should not be subject to any rules or religious exhortations at all. But given some of our increasingly worrisome realities (out-of-wedlock births, etc.), perhaps this would make for fruitful conversation.

Why does shariah matter? It matters for Muslims because it represents the ideals that define a properly constituted Islamic existence. Islam without shariah would be Islam without Islamic ideals. While most non-Muslim Americans may think of Islam without shariah as simply Islam without rules or criminal sanctions, for Muslims Islam without shariah would also mean Islam without prescriptions on ablution, prayer, alms, sales, diet, filial piety, civics, etc. While the discourse in America around shariah will probably continue to succumb to the self-serving tendency to "compare my ideals with your realities," shariah itself will continue to inspire Muslims, especially in their personal lives, to strive, with hope and humility, to narrow the gap between the unacceptable "is" and the ever-elusive "ought."

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Who's Afraid of Shariah?

Sumbul Ali-Karamali

Author of "The Muslim Next Door: the Qur'an, the Media, and that Veil Thing"
Posted: September 3, 2010
The Huffington Post
---

Hasn't the whole notion of shariah in America gotten a bit out of control? No, it hasn't -- it's gotten hugely, obscenely, ignorantly out of control. How many of those anti-Islam protesters holding "NO SHARIA LAW" signs (as if anyone were advocating shariah law in the U.S.) actually know what the word means? I'd say, oh, none. Roughly.

Shariah (also spelled shari'ah or sharia or shari'a) is the Arabic word for "the road to the watering place." In a religious context, it means "the righteous path." Loosely, it can mean simply, "Islam."

There are six principles of shariah. They are derived from the Qur'an, which Muslims believe is the word of God. All Islamic religious rules must be in line with these six principles of shariah.

Aha! The six principles must be about killing infidels, veiling women, stoning people for adultery, honor killings and female genital cutting, right? Nope.

Here they are, the six principles of shariah:

1. The right to the protection of life.
2. The right to the protection of family.
3. The right to the protection of education.
4. The right to the protection of religion.
5. The right to the protection of property (access to resources).
6. The right to the protection of human dignity.

Well, bless me, as a pledge-of-allegiance-reciting, California-raised Muslim girl, these six principles sound a lot like those espoused in my very own Constitution of the United States. Except that these were developed over a thousand years ago.

This is the core of shariah -- these six principles. The term "shariah law" is a misnomer, because shariah is not law, but a set of principles. To Muslims, it's the general term for "the way of God."

But how do we know what the way of God is? Early Muslims looked to the Qur'an and the words of the Prophet Muhammad to figure this out. They filled books of interpretive writings (called fiqh) about how to act in accordance with the way of God. They rarely agreed -- the fiqh is not just one rule, but many differing opinions and contradictory rules and scholarly debates...

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Islamic finance bodies have trillion-dollar potential but do you understand it?

April 6, 2010

* Analysis by: GLG Expert Contributor
* Analysis of: Islamic finance bodies have trillion-dollar potential - Moody's
* Published at: www.news.com.au

Summary

ISLAMIC financial bodies, which adhere to religious proscriptions against interest, have a market potential of at least US$5 trillion ($5.43 trillion), Moody's Investors Service said.

Its important to understand that Islamic Finance doesn't necessarily mean a new safe form of financing or investing.

Rather its an alternative source of funding respecting the religious beliefs and values of Islam.
Analysis

Islamic Shari’ah and its Objectives

Shari’ah principles underlying equity investments.
Prohibition of riba (interest). Investors may not deal in equity or monetary transactions involving riba. This includes interest leverage instruments and gearing. Nor may they invest in entities whose primary income is derived from interest (banks). Also prohibited are stocks guaranteeing fixed returns (preference shares).

Gharar (uncertainty accompanied by deceit), excessive speculation and maysir (gambling and leisure).

The business activities of the companies targeted for investment must fall within Shari’ah acceptable parameters.

The net assets of a company targeted for investment must not consist of highly liquid assets (cash; deposits and receivables).

Non-Shari’ah permissible income must not exceed certain specified thresholds.


What is Shari’ah?

Islamic laws are known in Arabic as "shari’ah”, this term includes laws of all aspects of life.

The two primary sources of Shari’ah are:

Al-Quran

Sunnah (prophet Muhammad’s way)

The other sources of shari’ah are:
Ijtihad – making decisions about existing financial issues
Ijma - consensus of the Muslim scholars on Islamic laws
Qiyas - analogical deduction
Uruf – approved custom (not contradicting with shari’ah)

The goals and objectives of shari’ah are important and are based around benefits to the individual and community. The primary rule is that everything in financial transactions is permissible unless there is a text of prohibition and so shari’ah laws function as a protection. This protection provides a real benefit, in terms of facilitating a higher uality form of humanity...

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Islamic laws of finance a cushion in hard time

By Stephen Magagnini
smagagnini@sacbee.com

Sacramento Bee
Published: Monday, Mar. 30, 2009

The recession gripping the nation has taken less of a toll on American Muslims who follow age-old Islamic laws against paying – or charging – interest.

They've also been shielded by socially responsible retirement plans because Shariah– Islamic law – forbids investments in banks and mortgages as well as tobacco, alcohol, gambling, pornography or weapons.

"If everybody was Shariah-compliant, there would be no recession," said Farouk Fakira, a Yemeni immigrant who moderated a discussion on Islamic finance at Sacramento's Masjid Annur last week.

Fakira, 57, rents a home – like hundreds of other local Muslims – because "interest is pretty much forbidden. If you're making money off of money, the only person who benefits is you."

Shariah – 1,400 years of Islamic legal knowledge based on the words of the Prophet Muhammad – guides Muslims in daily life, said Imam Muhammed Abdul Azeez of Sacramento Area League of Associated Muslims, or SALAM.

Shariah prohibits usury, which often took advantage of a desperate person who needed to feed or protect his family, Azeez said. "There's an element of exploitation here."

The bottom line for many Muslims is, "if I don't have the money to buy something, that means I can't afford it," said Deya Dean Elghassein, who's Palestinian American.

His family helped him buy his home in Folsom with cash. "I do use credit cards, but they have to be paid off in full at the end of the month," he said. He wouldn't invest in Costco because it sells pork and alcohol, but he and others shop there "out of necessity."

About 20 percent of the Sacramento area's 50,000 American Muslims closely follow Islamic rules of finance – especially the prohibition against interest – said Irfan Haq, an economist who's president of the Council of Sacramento Valley Islamic Organizations , an umbrella organization representing 10 mosques.

"Muslims in general have been much less affected by the recession because they're very cautious and conservative in matters of finance and take a longer-term view of life," Haq said. "They want to invest their funds in a way that pleases God so they can sleep peacefully – they care about the afterlife."

Along with avoiding interest, another tenet of Islamic finance is not to invest in enterprises that violate Shariah: alcohol, gambling, banking and weapons. Azeez counsels his Muslim flock not to buy businesses that sell alcohol because "you cannot be in the business of spreading sin: Drunk driving kills."

Mohammed Memon, a Pakistani American project manager for Oracle in Rocklin, has a 401(k) through Amana Mutual Funds – a Shariah-compliant fund based in Bellingham, Wash.

"They're relatively better than other funds; I'm down 15 to 20 percent while many of my friends are down over 50 percent," said Memon, 38.

Amana's income and growth funds avoid bonds and interest-paying securities.

"We screen about 5,500 stocks a month for our 75,000 shareholders, and 2,200 to 2,400 pass," said portfolio manager Nick Kaiser. "The growth fund's biggest holding is Apple Computer. We buy technology, health care stocks and stocks with low debt. The income fund focuses on drug companies, energy stocks, mining."

Shariah also prohibits gharar – the Arabic word for uncertainty or risk – and maysir – gambling – which includes real estate speculation.

Metwalli Amer, founder of SALAM, said he knows Muslims who speculated in real estate and lost their shirts.

Amer, 75, said Islamic finance is about living within your means and helping the needy. "If Muslims had followed that, we'd be much better off," said Amer, an Egyptian immigrant.

But he said the majority of Muslims he knows "became greedy."

Islam doesn't prohibit wealth as long as you give back, he said. "The Quran promotes going into business and trading ventures that share the profits and loss."

Amer said one Sacramento Muslim who was able to become a millionaire while adhering to Islamic financial principles is Kais Menoufy.

Menoufy left Egypt in 1976 and landed in California in 1985 after becoming vice president of a computer science company in Europe and saving his money by sleeping on floors.

"When I started my own company in Sacramento nine years ago, I rented an apartment for $800 a month in the Arden area and again was sleeping on a mattress on the floor," said Menoufy, 62.

By plowing the profits back into his business, Menoufy said he built Delegata Technology Consulting & Systems Integration into a multimillion-dollar company with about 100 employees. "You spend as much as you can make," said Menoufy.

He recently bought a home along the Garden Highway for cash.

While Islamic scholars generally say interest-based financial transactions are prohibited, sometimes American Muslims have no choice, said Azeez of SALAM. "Every day I get a question about interest and student loans – I tell them getting your education is an absolute necessity."

If a student can't get an interest-free federal loan, "get yourself a loan with an interest rate as close to inflation as possible – they cancel each other out," Azeez said.

Some scholars say the financial relationship between consumers and banks is OK if there's no exploitation.

Akhtar Khan, who has a doctorate in economics, bought his home with a conventional mortgage out of necessity, he said, but hopes to pay it off as soon as possible.

Muslims are allowed to buy a home directly from the owner with owner financing, some scholars believe.

Mohammed Memon bought his home from the builder. "No banks are involved – there can't be a third-party contract."

Hamza El-Nakhal, a retired microbiologist from Egypt, said he came to the United States with $10 in his pocket 40 years ago.

He got a bank loan to buy property here. "Many scholars say that if it's necessary to buy your home and take out a loan to survive in a foreign country, it's OK," said El-Nakhal, who is on the board of the Islamic Center of Davis. "There were no Islamic lending institutions when I bought. Now there is."

The Shariah-compliant Lariba Bank of Southern California, founded in 1987, lends money without interest – instead, it goes into partnership with its clients and then charges rent on the property.

Here's how Lariba works: If you borrow $80,000 from Lariba on a $100,000 home, you send a monthly payment to Lariba that has two components. The first is a portion of the money you owe Lariba. The second component is a rental payment that declines each month as you build up equity.

The first month, you pay 80 percent of the monthly rent to Lariba. Every month, you pay off a portion of the loan without interest, and then pay a smaller percentage of the rent based on your share of the principal.

"The approach is one of investment as opposed to just lending money," said Lariba's president Mike Abdelaaty.

Rather than checking to see if a client has the ability to pay back a loan, he said, "we use the rental value of the property in measuring whether it's a good investment."

The monthly rent is fixed over the term of the loan, which is competitive with other banks, said Yahya Abdur Rahman, Lariba's founder. "We've never kicked anybody out of their homes. We give them a three-month grace period, and then we tell them, 'Maybe your home is too big for you and you need to move to an apartment.' " If the house is sold, 100 percent of the profit goes to the customer, he said.

Other religions, including Judaism and Catholicism, also had prohibitions against usury, said Rahman, whose more than 3,000 clients span all faiths.

Islamic Banks Withstand Mortgage Crisis

Islamic Banks Withstand Mortgage Crisis


MANAMA — Islamic banks have succeeded where all others have failed, withstanding the US subprime mortgage crisis which left global markets rattling.

"The Islamic bank has a fantastic year, the underlying trend of Islamic banking businesses within ABC is very good," a senior official of the Arab Banking Corporation told the Reuters Islamic Finance summit.

Duncan Smith, the head of the Corporation's Islamic operations, said a focus on regional business and efforts to ensure products complied with Shari`ah helped shield his unit from credit-market losses.

[My note: According to the Arab Banking Corporation, Mr. Duncan Smith who is quoted in the article left the bank some months ago]

The bank's 2007 earnings from conventional non-Islamic departments fell to $125 million from $202 million in 2006.

The ongoing American subprime mortgage crisis, which is making international headlines, was sparked off last year when a steep rise in the rate of foreclosures caused more than 100 lenders to fail or file for bankruptcy.

The crisis had a domino effect on the US economy and stock market, which in turn affected almost all stock markets worldwide as early as last month.

Global banks have written down more than $80 billion in credit market losses since October alone as defaults on subprime mortgages triggered a credit crisis that threatens to tip the US economy into recession.

None of Malaysia's Islamic banks have been hit by write-downs resulting from the crisis and the resulting global credit crunch, second finance minister Mohamed Nor Yakcop told the three-day summit in the Bahraini capital Manama.

He said holders of sukuk or Islamic bonds have been shielded from the worst effects of the subprime mortgage meltdown.

Instead of interest, Islamic banks operate on the principle of sharing risk and reward among all parties in a business venture.

"Sukuk has now become a very popular product," said Nor Mohammad. (Reuters)

Economists say the global credit crunch triggered by the subprime crisis has spurred greater interest in Shari`ah-compliant financing.

"There is a feeling that the way Islamic finance is structured — the lack of freedom in leveraging, the need for real assets — that there will be some who will find Islamic financing interesting," said the Malaysian official.

He said interest in financial instruments that comply with Islamic prohibitions against investing in sectors such as alcohol, pornography and gambling was starting to emerge in China and South Korea.

"Sukuk has now become a very popular product," Mohamed Nor stressed, adding that officials from Hong Kong had consulted with Malaysia on Islamic finance.

Rasheed al-Maraj, the governor of Bahrain's Central Bank, believes the mortgage crisis could encourage weary investors to throw their weight behind Islamic assets and stocks given the collapse of Western asset prices.

"Maybe Islamic banking will be a safe bet for them," he said.

"I think opportunities exist in the United States and Europe as a result of this financial distress."

Giant banks like America's Citigroup, Britain's HSBC and Germany's Deutsche Bank recently launched Shari`ah-compliant branches.

A Deutsche Bank executive told Reuters that it was helping US and Canadian firms to sell Islamic bonds in Malaysia this year worth between $300-500 million in ringgit.

Having about 76 percent of the world's Islamic bonds, Malaysia has been promoting itself as a hub for Islamic finance but faces rivalry from neighboring Singapore and Brunei.

The Islamic banking industry, which began almost three decades ago, has made substantial growth and attracted the attention of investors and bankers across the world.

There are an estimated 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2010.

Watch Ayloush's interview on this topic on FOX Business News

Ayloush discusses Shariah compliant and Islamic finance on FOX

CAIR-LA Executive Director Hussam Ayloush discusses Islamic financing on FOX Business Network. His interview was intended to offer a balancing perspective to a guest on the program earlier this week who sought to demonize Islam and Muslims by demonizing Islamic law, or shariah.