Islamic home finance offers new solutions in this economy

Washington, DC - The business model and growth of the Islamic finance sector – the only financial system in the world today that is based on the teachings of a major religion – may present new opportunities for American households – Muslims and non-Muslims alike.

The Islamic home financing sector is active in nearly 40 states in the United States. While operating on an interest-free business model, Islamic home financial institutions are compatible in every way with modern capitalism, just like conventional financial institutions.

There are differences, however.

At the core of the Islamic model is the view that lending is a charitable act as opposed to a business activity, that debt is not something to be exploited for profit.

Instead, Islamic finance uses a participatory model that seeks to engage all parties – as partners – in the sharing of both risks and rewards, without guaranteeing returns.

By prohibiting interest, Islam has actually prohibited disinterest, in the sense that partnerships encourage active management, accountability, responsibility and joint oversight.

Islamic home financing means that an Islamic bank and its client-partner acquire a real-estate asset jointly – as co-investors. Where conventional mortgage banks profit from interest, Islamic home finance companies derive revenues from co-ownership agreements in which rent – in return for the client-partner’s ability to live on the property – is paid to the finance company on its portion of the property.

“Rent plus equity” payments are usually equal to “principal plus interest” payments. When the client-partner takes full title of the home, rent payments to the bank partner stop.

Because Islamic home finance caters to first-time buyers who for religious or financial reasons cannot consider conventional, interest-based mortgages, the business continues to grow and thrive as Islamic banks expand their services within the US market, even in this time of shrinking job markets and economic crisis.

The three largest US-based Islamic home finance companies (Chicago-based Devon Bank, Virginia-based Guidance Residential and Michigan-based University Bank) report that they have done “substantially more” business in the first two months of 2009 than during the same period in 2008. Devon Bank reports that operations during this period have nearly doubled.

In keeping with the concept of partnership and risk sharing, Islamic home finance is more attractive to American buyers because it uses non-recourse contracts. This means that banks can recover no more from homeowners facing foreclosure than their homes. While conventional mortgages work this way in some states, Islamic home finance companies offer non-recourse contracts to buyers in every state in which they operate. Thus, even if the value of the home falls below the amount financed, the finance company has no recourse to the other assets of the homeowner.

Islamic home finance companies have also shown themselves more willing to restructure financing than to foreclose. The three largest Islamic finance institutions in the United States report, for instance, that delinquencies “are less than half the conventional mortgages rate.”

While the fewer cases of foreclosure, coupled with the willingness to restructure financings, may be a function of the still relatively small size of the Islamic home finance sector (estimated at less than one billion dollars in annual investment for each of the three largest institutions in the United States), it is also reflective of the basic philosophy of concerned partnership and joint responsibility.

Perhaps now is the time for ethical and religious values to make a comeback in the banking business, and in the home finance sector in particular. In 2009, while the world looks for solutions to the global financial crisis and American families worry about the financing of their homes, the goal of Islamic finance, like that of all successful commerce, should be to profit by sharing what it knows with others.

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* Yusuf Talal DeLorenzo is chief shariah officer at the US-based Shariah Capital Inc. This article was written for the Common Ground News Service (CGNews).

Source: Common Ground News Service (CGNews), 5 May 2009, www.commongroundnews.org
Copyright permission is granted for publication.

Youth Views

Youth Views~ Taking dialogue to the next level Joshua M. Z. Stanton

Jerusalem - In recent years, peacebuilders have recognised the need for interfaith discussion. It is no longer difficult to find a medium for dialogue. Churches, mosques, temples and synagogues, as well as a myriad of non-profit organisations, offer programmes centred on dialogue between members of different religious traditions. Yet many of these well-intentioned initiatives succumb to an unproductive default: we are all really just the same. Fundamentally rooted in politeness, such notions overlook the differences that do exist between religious traditions and inhibit conversation about the topics that actually cause friction between communities. The real challenge in interfaith dialogue is finding a way to effectively engage difficult topics. Doing so holds the potential to bring a deeper level of understanding between religious communities and a significant reduction in tension. Recently, I had the chance to meet with Muslim and Jewish high school students participating in the Face to Face programme, sponsored by the Interreligious Coordinating Council in Israel (ICCI). The group is said to be the only inter-religious programme for youth in Israel that continued to meet regularly even after the outbreak of the recent conflict in Gaza. Their strategy for success was not to avoid feelings of anger and grief in the course of meetings, but to guide the expression of these sentiments. Some Muslim students in the group had relatives living in Gaza who were directly impacted by the war. Some of the Jewish students worried about siblings in the Israeli military and the threat of Hamas rocket strikes against civilian areas in Israel. Many of the group’s meetings during and after the war were tense, with voices raised and tears shed. But because of careful facilitation by the groups’ leaders – who provided simultaneous translations in Hebrew and Arabic and encouraged students to focus on issues surrounding the war rather than blaming one another for its occurrence – the group held together. Just a couple of months after the war, the students were able to sit together again and laugh over a meal of hummus and falafel. As one student proudly reflected, eliciting nods from other participants, “If we were able to get through those times without hating each other, nothing can keep us from being friends.” The recently-founded Journal of Inter-Religious Dialogue (www.irdialogue.org) hopes to follow the ICCI’s example by facilitating dialogue about social, political and cultural issues affecting religious communities around the world, including those most challenging to discuss. By approaching contentious issues in an academic manner, it will provide a new means of engaging on matters that often underlie inter-religious interaction but are seldom discussed. In so doing, we hope to provide a stronger basis for collaborative efforts and intellectual cross-pollination between religious communities. The journal began to take shape in June 2008, when I approached Stephanie Hughes, Student Senate co-Chair at Union Theological Seminary, with an idea for a kind of inter-religious publication that goes a step beyond the present literature on inter-religious dialogue. As a rabbinical student, I felt motivated to find a partner from another religious background equally invested in the ideas of mutual respect, learning and collaboration. Having formed a strong partnership, the two of us set off to found what became the Journal of Inter-Religious Dialogue Neither of us held a PhD, but both of us felt compelled by our traditions to contribute to inter-religious work and study. In recognising our own limited experience in formal academic scholarship, we found a niche as facilitators who could both encourage and guide discussions. While the first issue of the journal, scheduled for release on 1 May 2009, will be dedicated to the dynamics of dialogue itself, subsequent issues will address topics that participants in inter-religious dialogue often shy away from. Thus the second issue in October 2009 will be entitled, “Engaging the Taboo: Gender, the Body, and Sexuality in our Religious Traditions”, and the third issue in March 2010 will focus on the role that religion can play in both fomenting and preventing violence. The journal’s goal is to bring scholars together with activists and non-profit leaders to discuss these topics. By drawing members of all three groups together to learn, discuss and debate on a free online platform, we hope to promote innovative programming within the field. Moreover, because of its electronic format, the journal will be accessible to an international audience of seminarians, professors, and religious and civic leaders. The inter-religious dialogue, work and scholarship will often take place locally, but lessons learnt can be applied globally. By engaging with some of the most difficult, yet important, topics in interfaith dialogue, we know these lessons will be worthwhile. ### * Joshua Stanton is co-founder and editor-in-chief of the Journal of Inter-Religious Dialogue (www.irdialogue.org) and a rabbinical student at Hebrew Union College. This article was written for the Common Ground News Service (CGNews).