Dream fulfilled helps Muslims realize theirs (1)

By Elliot Blair Smith, USA TODAY
PASADENA, Calif. — On a sunny afternoon, Yahia Abdul-Rahman ignores the broken air conditioner in his mortgage-finance company's cramped Southern California office. Around him, three-dozen employees, some of them Muslim women veiled in scarves, toil amid the rising heat and stacks of paper clutter.
Chief lending officer Syed Rehman, 64, his crumpled white shirt rolled up to the elbows, is attempting to close a loan in Urdu, the language of his native Pakistan. In English, he complains that his crowded corner, which he shares with two assistants, is "boiling."
But the boss, Abdul-Rahman, 60, is as cool as his blue-green eyes. The CEO and founder of American Finance House-Lariba already has succeeded in two previous careers, as a chemical engineer and financial planner. Now, he is creating his legacy in a third: Lariba is among a handful of lenders that dominate this country's small but growing $600 million Muslim mortgage market.
Governed by the Islamic religion's sharia laws, which prohibit earning or paying interest on borrowed money, the market is expected to double in the next few years as American Muslims with conventional home loans look to refinance with Islamic products.

Lariba's interest-free mortgages resemble lease-to-own contracts. Buyers build equity while paying rent and principal. One difference: Lariba homeowners immediately take title while the finance company retains a lien. Its competitors offer variations.

"We are not run-of-the mill marketing people who find a niche and run with it," says Abdul-Rahman, elegantly attired in a dark suit and sleek tie. "We are humble servants of the community."

Muslim mortgages
Under Islam's sharia law, which guides moral conduct, interest-bearing income and debt are considered sinful. But financing may be arranged to incorporate negotiated profit margins and fees rather than compounded interest.

Ijara-wa-Iqtinaa: Lease to own
Home buyer acquires title to property while financier retains a legal claim to the investment. Buyer's monthly payments to financier include lease and equity components. Title transfers at end of contract.

Murabaha: Installment purchase
Home buyer identifies property and negotiates price, but financier executes transaction with seller. Financier immediately resells property to end buyer on installment-payment plan at pre-agreed markup.

Musharaka: Co-investment
Home buyer and financier are co-owners through a partnership entity such as a limited liability company. Buyer's monthly payments consist of rental and equity components. Over time, buyer's equity grows.

Source: USA TODAY research

Not 3½ years after the Sept. 11 terror attacks put the U.S.-Muslim relationship in sharp focus, the nascent Islamic finance market is undergoing profound change.

U.S. authorities have identified several Muslim charities as terror-financing fronts. And scandals have erupted at two banks with ties to the Middle East: Arab Bank in New York and Riggs National Bank in Washington, D.C. But the attention also is contributing to the modernization and development of some ancient articles of faith.

Islamic mutual funds and even hedge funds are beginning to flourish, as are interest-free mortgages and business loans. The nation's estimated 1.1 million American Muslim households, long deprived of sharia-compliant financial products, are benefiting as a result.

Rushdi Siddiqui, director of the Dow Jones Islamic Index Group, which tracks sharia-compliant investments, says, "Frankly, with 9/11, as with any tragedy, there was a silver lining. One of the silver linings ... was a revival by Muslims to look inward to how they can be more compliant (with the Islamic faith)." As a result, he says, American Muslims have become better educated about alternatives to Western financial products.

The trickle of new capital is changing people's lives.

In Sacramento, hospice physician Khurram Ali, 37, a Pakistani immigrant, was living in a rented apartment with his pregnant wife and young son when recently he found a $383,000 house for sale near a Muslim mosque and school.

Having gone without Muslim comforts during the 41/2 years he practiced medicine in South Dakota, Ali feels at home in California. But he was unwilling to buy the property without an interest-free loan.

"I felt so strongly that if we were not able to get financing — which was possible — we were going to stay in our rented apartment," says Ali, who paid Lariba an "implied" interest rate of about 6% on his loan, making it slightly more expensive than conventional mortgage rates.

Lariba's implied rate reflects the rental income and any transaction fees calculated as a percentage of the purchase price over the life of the lease-to-own contract. It is tax deductible to the homeowner, just as mortgage-interest expense is to conventional borrowers.

In central Los Angeles, Fouzia and Asfaq Shabandri — Muslim immigrants from India — recently acquired their fifth KFC franchise with interest-free financing from Lariba.

And in Cedar Park, Texas, Altaf Hussain, 43, a semiconductor marketer, just purchased a $475,000 house for his family through Lariba. "With our kids growing up, we wanted to set an example for them," he says. "I wanted a competitive rate. But, to get out of paying interest, I would have been willing to pay a little higher to get into a Muslim mortgage."