August 21, 2002
<bt>About a year or two ago, many of M. Tayyab Shah's Muslim clients were very excited about what seemed like a wonderful opportunity. The source of their excitement was the launch of a new way to fund home mortgages, a way that would not violate their religious beliefs.
"When this started one or two years ago, people were very happy," Shah remembers.
The new financing system, offered by a Falls Church company called Guidance Financial Group, allowed customers to finance a house without paying interest. Because the Shariah, or Islamic law, prohibits usury, which it calls "riba," many Muslim homebuyers were faced with a dilemma in their search for financing. They could either apply for conventional financing with interest or they could try to pay the entire cost of their house up front.
NAVEED SIDDIQUI, the national director for business development at Guidance Financial Group, said the response to Shariah-compliant financing was overwhelming.
This type of financing, he said "offers [customers] at last the peace of mind that they realize they're doing things that are in line with their spiritual beliefs," he said.
Within two weeks of opening and before it had launched any kind of marketing or advertising campaign, the company had already received more than 160 applications. Siddiqui estimated there were 500 to 600 application currently in process.
Guidance is the only company to offer such services in the Washington region although there are similar companies based elsewhere that work with customers nationwide.
Siddiqui described Shariah-compliant financing as a "partnership." The customer and Guidance buy a house together but the customer then buys out Guidance's share over an agreed-upon number of years. While there is no interest attached to the payments, the customer pays what Siddiqui calls a "markup" which reflects the increasing market value of the house. In that way, the company turns a profit and the homeowners is safe in the knowledge that he or she is not violating a central tenet of the faith.
"It is defined as a business transaction and not a loan," said Siddiqui. "What we've tried to do is simulate a product where the Muslim can enjoy all the benefits of an American consumer but we've made the product Shariah-compliant."
For Guidance customer Nauman Illias, Shariah-compliant financing was a necessity.
"I would not have bought the house if I were not able to finance it using Shariah principles," said Illias, who bought a house in Maryland in March. "I feel much more comfortable and justified in living in the house."
"INTEREST EQUATES to disinterest," noted Yusuf DeLorenzo, an Islamic scholar in Ashburn who sits on the Shariah board of a number of companies, including Guidance.
"A lender is concerned first and foremost with the interest rate and less with the borrower and his or her enterprise whereas if you have a prohibition against interest then money cannot be lent at a rate of interest but rather it can be shared through a partnership."
Shariah boards perform outside audits of companies to make sure they are complying with Islamic law. When companies meet religious standards, the board issues a fatwa, or edict, telling Muslims that they can do business with the company without compromising their values.
Shariah-compliant economic practices will ensure transparency and accountability, he said.
"If you subject your economy to the vagaries of interest rates then you're setting yourself up for particular trouble," he said, citing the recent stock market roller coaster ride.
While Siddiqui and DeLorenzo talk about a "partnership," both insist that they are not immune from the drive of American capitalism.
"A charity is wonderful but how can you sustain a charity on a national scale?" asked DeLorenzo.
"It's just like any other business," said Siddiqui.
"The Muslim consumer is just like any other consumer," he added, noting that Muslims, like other Americans, want a strong product at a competitive price.
BUT NOT everyone is delighted with the product. Shah, the realtor, said he had clients who were not satisfied with Guidance.
"The loan process is really very complicated," he said. "It's not very well organized. Too many things need to be cleared."
Shah also said the "markup" system was no different from interest.
"There is some kind of interest in it actually," he said. "There's really no difference."
"You just cannot put a name on it and say it is a Shariah loan," he added.
On the question of the markups, DeLorenzo said: "The devil is in the details."
"You can accomplish the same thing by other means," he added. "It's a situation where something looks like something else but is not it."