Islamic law prohibits Muslims from paying interest on debt. Local
groups are helping entrepreneurs find alternatives.
BY SHERYL JEANAbdirizak Bille of Minneapolis, a practicing
Muslim, faced a quandary when he decided to start a small bus transportation
service. Bille needed a loan to get the business going, but traditional
Islamic law prohibits him from paying interest, or reba, on debt.
Until recently, options have been limited for Muslim
entrepreneurs like Bille. But in May, because of new efforts by
Twin Cities groups, Bille was able to obtain interest-free financing
for his firm, which transports immigrants to English classes.
Bille financed a 34-person school bus with $15,000
borrowed from the Neighborhood Development Center in St. Paul. The
group built a $2,000 profit into his repayment plan. Bille pays
no interest, and the center still earns an annual return because
the profit replaces interest.
"I prefer to stay out of business than participate
with interest," said Bille. Without the alternative financing,
he would have needed to save enough money to buy the bus, or try
to borrow money interest-free from friends, he said.
Twin Cities Muslims have spent the past year educating
government officials, lenders and civic leaders about the need to
accommodate Islamic beliefs through alternative financing. Banks
say strict regulations have kept them from stepping up to meet the
Muslim and financial leaders agree that it's not just
a personal or religious issue; it's also a community and economic
concern. They say a lack of acceptable financing has slowed Islamic
entrepreneurial efforts and stunted business expansion in the Twin
Cities. Some say the void has prevented Muslims from expanding their
wealth, which has lessened their economic impact on the region.
Nationally, the Islamic community is growing in numbers
and affluence. The 6 million Muslims living in the United States
(out of 1.2 billion worldwide) have a per capita income of $35,000
to $45,000, well above the national average of $24,000 to $27,000,
according to Islamic Horizons magazine.
An estimated 75,000 Muslims live in the Twin Cities
(up from about 45,000 five years ago), with 100,000 living in Minnesota.
Nonprofit groups have seen the need for alternative
financing during business training classes, especially among recent
Somali immigrants, who tend to be more observant of the Islamic
religion. Minnesota has one of the nation's largest populations
of Somali refugees, estimated to be as high as 40,000 people.
Mike Temali, executive director of the Neighborhood
Development Center in St. Paul, started Reba Free Investments earlier
this year to provide small-business financing. He saw Muslim immigrants
become discouraged about starting a business because they couldn't
get a loan.
Several local Islamic financing programs have recently
begun or are in the planning stages:
-- Phillips Community Development Corp. and the Minneapolis
Community Development Agency each recently financed one Islamic
business owner with administrative fees replacing interest. Both
seek ways to make the programs acceptable to more orthodox Muslims.
-- The Minneapolis Consortium of Community Developers
has provided two fee-based financings to Islamic businesses as a
pilot program. The nonprofit group wants to establish a micro-venture
capital fund within two years that would cater to the needs of Muslims
and others. It is also exploring other funding options.
-- Dalsan Auto Dealer, a Somali used car dealership
in Minneapolis, opened a year ago to sell cars and provide interest-free
financing to customers.
-- Nationally, a few companies such as American House
Finance Lariba and MSI Financial Services offer car and equipment
leasing and interest-free financing for houses and businesses to
people living in Minnesota. Some local efforts also are focusing
on Islamic home ownership.
-- A Twin Cities group is working to form an Islamic
-- Banks such as Wells Fargo & Co. and University
Bank are exploring how they can help Islamic businesses and encourage
"There is a big need to do this,'' said Wafiq
Fannoun, a consultant for many Twin Cities nonprofit groups and
banks on how to provide Islamic financing. "The Muslim community
in the Twin Cities has been trying to do this for 10 years.
"Many Muslims in Minnesota have no choice but
to get a traditional bank loan. We all do it out of need. This is
the system. I can't change it overnight, but this is a start."
Hamdy El-Sawaf, executive director of the Islamic Center
of Minnesota, said Islam is the world's fastest-growing religion
but Muslims still struggle for greater social understanding.
Muslims from Africa, Asia, India, the Middle East and
Eastern Europe follow a religion founded 1,400 years ago. Islamic
law, or Shari'ah, is based on the Koran, the holy book of God, and
the teachings of the Prophet Mohammed. It strongly influences Muslim
Islamic law strictly forbids the giving or receiving
of interest. Muslims believe in maintaining economic harmony in
any financial transaction. It is not acceptable for a well-off person
to benefit from lending money to someone less fortunate. Money is
shared as a way to help the community prosper.
That belief can affect how Muslims finance a house,
a car or an education, how they start a business, how they pay bills
and how they use credit cards.
The payment of interest is either a major or minor
obstacle, depending on how orthodox a Muslim is. Many traditional
Muslims in the Twin Cities don't own a house or have a bank savings
account. If they have a savings account, they typically donate the
interest to charity.
Financing agreements acceptable under Islamic law include
buy-sell and buy-lease agreements, interest-free loans, cost-plus-profit
contracts, stock investments and partnerships.
Osman Ali took advantage of a buy-sell agreement when
he started a business in May to deliver about 400 meals a week and
cater events for Tariq's, a Somali restaurant in Minneapolis. The
Neighborhood Development Center bought a 1995 Dodge Caravan and
equipment and resold it to Ali at a profit for $5,323 with monthly
payments of $443.64 for one year.
But other Twin Cities Muslims, faced with few options,
have used their savings and relied on the generosity of family and
friends, much as other immigrant groups have done. Others, especially
the Somali community, pool their money in a group setup somewhat
like an investment club.
One of those is Halimo Yusef, who opened a clothing
shop called Beautiful Woman a year ago at the Karmel Souk, a Somali
mini-mall in Minneapolis. Yusef, her Somali partner and the owners
of four other shops there formed a financing pool: Each shop contributes
$1,000 a month and one receives the $5,000, she said. The next month,
the $5,000 goes to another shop until all five have received the
pot. Then it repeats.
Yusef uses the infusion of interest-free money to restock
her store with clothing, toiletries and housewares from Chicago,
New York and overseas. But to break even or expand, she needs more
money to buy more merchandise.
"In general, immigrant communities are very resourceful
and tend to draw money from their extended families," said
Ed Lambert, executive director of the Minneapolis Consortium, an
association of nonprofit community development corporations in the
Minneapolis area. "But there are plenty (of Muslims) who do
not have the kind of extended family that can provide that kind
In seeking financing from other sources, Muslims may
find obstacles in the form of state and federal laws. In addition,
many of the nonprofit groups trying to help them face funding issues.
For example, Muslims didn't have access to the Neighborhood
Development Center's program earlier this year because it ran out
of money. The center had been banking on receiving money from the
Minnesota Department of Trade and Economic Development's urban initiative
program, but it ran into a legal snag. State law prohibits state
loan funds to be used to buy equipment and lease it to a business,
said Bart Bevins, who administers the department's Urban Initiative
Bevins believes a legislative amendment may be proposed
next year. In the meantime, the Neighborhood Development Center
last month received a $100,000 grant from the Minneapolis Foundation
for Reba Free and hopes to receive money from several other sources,
BANKS HELD BACK
Nonprofit groups, rather than banks, have led Islamic
financing efforts in the Twin Cities because banks say they're bound
by regulations. Changing regulations to accommodate Muslims would
radically alter the banking industry, which traditionally is slow
to adopt innovations.
"It's new territory for the regulators,"
said David Reiling, president of University Bank in St. Paul. "They're
not going to invent anything and they're not going to say you can
do it. Once someone does it and if there aren't any blatant regulation
violations, they will monitor it closely and see how it works."
Banks have increased outreach and education to ethnic
groups such as Latinos and Asians, but Islamic financing is a bigger
risk because it requires a new financing structure, not just a new
name for the same old product. But Muffie Gabler, Wells Fargo's
vice president of community development for the Midwest, points
out: "This is something that we need to be aware of and deal
with because these are emerging markets ... and that's the growing
part of our customer base."
One answer to the financial difficulties facing Muslims
may be the Islamic Credit Union of Minnesota, which a group of Muslims
is trying to form to develop a financial system within Islamic guidelines.
It would be the first Islamic credit union in the nation.
The group, which has been focused on educating Muslims
about what a credit union is, is collecting fund-raising pledges
and earlier this year launched a Web site at www.icumn.org and printed
educational pamphlets to hand out at Islamic events, said Fawzi
Awad, one of the organizers. He wants to have a credit union proposed
to the state this fall, but has not yet approached state or federal
"We don't want to be viewed as establishing
something different from the norm, but we want to create something
we believe in," Awad said. "This could be a solution to
some of the issues we deal with in society."