Blending banking and Islam

September 2, 2003

BY TAMMY CHASE Business Reporter

Salim Shelia, who rents a two-bedroom apartment in

Rogers Parkfor himself, his wife and three of his

children, wanted to own a bigger place to live. Yet

his religion forbids him from taking advantage of

recent record low interest rates, because the Koran

prohibits Muslims from paying or collecting interest.

But Shelia, 47, an Indian, recently closed on the

purchase of two condominiums in the same building in

which he rents, and he plans to convert them into a

five-bedroom duplex. He financed the purchase through

a new form of lending developed by Devon Bank, which

allows devout Islamic people to finance home purchases

without paying a penny in interest, while still

allowing the bank to earn a profit on the loan.

At a time where Muslim and Jewish relations are deeply

strained around the world, the Rogers Park bank, owned

by the Loundy family, a Jewish family prominent on the

North Side, has found a way to help the orthodox

Islamic population buy homes. 

Devon Bank officers have long worked with what they

call "casual" Muslims, who use western, traditional

forms of financing for businesses and homes. But

Muslims who strictly adhere to Islamic doctrine would

either have to save enough cash to buy a home or

borrow from relatives and friends.

Devon Bank, 6445 N. Western Ave., began offering the

financing this summer. It is one of a handful of

institutions across the country catering to Muslims,

and one of the few--and maybe only--Chicago-based

banks to do so. Banks foresee growing demand for such

financing products, given an estimated Muslim

population of as much as 7 million in the United


"Banks are starting to pick up on it," said Tracy

Mills, a spokeswoman for the American Bankers

Association. She said California-based Wells Fargo

Bank and a few out-of-state finance companies, such as

American Finance House-Lariba, are among the few

financial institutions offering the special financing.

Devon Bank has quietly catered to minority groups

through its 58-year history, employing tellers and

bankers who speak 30 languages. In the last several

months, Nazir Gurukambal, an assistant vice president,

had been getting calls from people asking the bank to

make financing a possibility for devout Muslims.

Collecting extra money is not religiously acceptable,

Gurukambal said. "Somebody making money, lending,

taking advantage of somebody's need--it's not


Bank officials met with Islamic community leaders and

tapped their own lenders and lawyers, including David

Loundy, the bank's attorney and son of bank chairman

Richard Loundy. They had to make sure the loans would

be sound and pass the scrutiny of bank regulators, a

tough crowd.

They developed two types of financing: Murabaha, an

Arab word for installment, and Ijara, which is Arabic

for lease.

*Murabaha: In this type of transaction, the buyer

finds the home he wants and the bank agrees to buy it.

The bank then sells the home to the buyer for a fixed

price that includes the price of the property plus a

profit. Instead of paying principal and interest, as

most homeowners do, the buyer pays principal that has

the profit already built into it.

*Ijara, pronounced E-jar-ah: Ijara is similar to a

rent-to-own transaction. The bank buys the house that

its customer wants, and the resident makes monthly

payments to the bank until he owns the home.

Devon is also working on a third type of transaction,

though it's not yet offering it: Musharakah. The bank

and the customer jointly buy a price of property, and

the customer over time buys out the bank's stake. The

percentage of ownership changes with each payment.

Sometimes, transactions like murabaha can be more

expensive than a traditional loan, said Dan Thompson,

senior business manager of community lending for

Fannie Mae. He explains: If a person buys a $100,000

house and puts down $20,000, he needs a loan for


Under the murabaha technique, the bank figures out the

interest charge over the life of the loan, and builds

that into the loan amount. So, the person needing

$80,000 would actually borrow $170,000 at zero percent

interest, which could lead to higher recording fees

and transfer tax, Thompson said. Devon for now is

keeping its Islamic mortgages on its books, though it

has been in talks to sell them to Fannie Mae, a

standard banking practice.

Under current federal tax laws, Muslims who use

murabaha and ijara financing can still deduct the

equivalent of what they would have paid in interest

from their federal income taxes, he said.

Devon Bank recently began to offer similar styles of

financing for businesses and equipment purchasing, and

it has fielded out-of-state inquiries about

Koran-compatible mortgage financing programs.

Devon Bank's David Loundy says the bank is now working

on financing for car purchases.

Shelia, who makes sweets at his brother Mohammed

Shelia's Rogers Park bakery, Tahoora, has found a way

to purchase newer vehicles on his own without

violating his beliefs. 

"Zero-percent financing" from dealers, he says, with a



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