Islamic law prohibits paying, charging interest
San Francisco Chronicle, Sep. 1, 2002
Don Lattin, Chronicle Religion Writer
Washington — Figuring out mutual funds or trying to afford that dream home in the suburbs is hard enough any time, but doing it under the strict dictates of Islamic law adds another layer of complexity.
That was the problem facing a room full of devout Muslims at a Saturday session of the Islamic Society of North America, a four-day convention that has brought 35,000 believers to the nation’s capital.
Workshops on everything from Arabic calligraphy to spousal abuse are on the agenda, but Muslim money management is one of the hottest topics among the participants and the vendors of Islamic products and services.
“We offer investment for this life — and the next,” said Omar Haydar, co- director of the Dow Jones Islamic Index Fund, who likes to remind his customers that there’s another balance sheet awaiting them in heaven.
“Your acts will be counted in the hereafter,” he warned.
Faithful Muslims try to avoid investing in companies dealing in alcohol, gambling, tobacco, pork products, sensual entertainment and other activities seen as contrary to the teaching of their holy book, the Koran.
But the biggest stumbling block to pure Islamic finance is avoiding the money lenders and all those companies that draw profits from collecting interest payments. That violates shariah, or Islamic law, and includes most banks, mortgage lenders, mutual funds and other financial institutions.
That does not mean, however, that Muslims can’t make a profit. And figuring how to do so without violating Islamic law keeps a growing army of religious scholars and financial analysts busy these days.
Traditionally, many devout Muslims in America rent rather than buy real estate and avoid the stock market.
“A lot of Muslims have their money in CDs, and just give away the interest to charity,” said Rushdie Siddiqui, who also helps manage the 2-year-old Dow Jones Islamic fund.
According to Siddiqui, there are more than 6 million Muslims in the United States, and a majority have college degrees and make more than $50,000 in annual family income.
One of the biggest advertisers at this weekend’s convention is Guidance Financial Group, a newly formed venture offering “Islamic home financing.”
The company’s logo is plastered all over the Washington Convention Center. It’s on tote bags carried by thousands of attendees, on the back of the 80- page convention program and dominates the entrance to a bustling bazaar featuring all kinds of Islamic products and services.
Umar Malik, a manager for the Virginia-based company, was one of a dozen salesmen handing out his card to anyone who walked by their high-tech booth, which had video screens and one salesman making the pitch through a cordless headset and very loud speakers.
“It’s simple, and very safe,” Malik shouted, trying to be heard over his sale partner with the microphone.
His simple plan is called the “Sharia-Compliant Declining Balance Co- ownership Program.” It allows Muslims to buy a house without technically borrowing money. Customers jointly buy the home for cash with a co-owner (Guidance Residential, LLC) and then pay the company monthly payments until they assume full ownership.
It takes 30 years and “simulates traditional mortgage financing for federal income tax purposes.”
Brian Ingram, a financial analyst in Bellingham, Wash., helps manage the Amana funds, an income and growth fund that has been around since the mid- 1980s and runs all their investments through a learned panel of shariah advisers.
According to one estimate, only around 3 percent of American Muslims invest in the stock market. And while that may have been wise in the last 18 months, Ingram said, Muslims have missed out on decades of high returns.
“Most Muslims don’t know what opportunities are available to you now,” said Ingram, one of four experts who spoke at Saturday’s Islamic investment seminar.
Seminar moderator Arshad Majid urged the audience to embrace the creation of wealth and thereby help “close the gap between the haves and the have-nots.”
Muslim reluctance to participate in the stock market, Majid said, has led to their “economic, social and political marginality in the United States.”
Total adherence to Islamic law against riba, collecting or paying interest on capital, would disqualify most companies from Muslim mutual funds.
So today’s Islamic scholars allow for a certain amount of capitalism when they go over a company’s financial statements. They calculate a company’s “impure income ratio” and decide whether they are right enough with the Koran.
Some companies — like Citibank or Phillip Morris, which sells cigarettes and brews beer — are obviously disqualified.
At Saturday’s session, a young Muslim environmentalist questioned why Exxon Corp. was on the shariah-approved list.
“Good point,” one of the Islamic investment gurus said. “We need to look into that some more.”