Interest-Free Financing In USA

By  Dr. S.M.Hasanuzzaman

Abstract

There are so far five interest-free financial institutions in the US. They are: Lariba Finance House (California, 1991), Devon Bank (Illinois, 2003), Guidance Bank (Virginia, 2002), University Islamic Financial (Michigan, 2003) and Ijara Loans (Texas, 2005). Residential financing tops the list of financing activity in all the five institutions. Lariba also finances autos, businesses, and equipment. UIF provides many banking services. Ijara Finance offers investment opportunities based on ijara and murabaha as well as sukuk-al-ijara contracts.The modus operandi of Lariba bank is declining partnership of the usufruct of the property with a concept of joint ownership. Devon Bank advances its funds on the condition of murabaha (except in three states where it also practices leasing). The ownership of the purchased property is placed in a holding company. Guidance works on the basis of co-ownership till such time as the customer pays off the entire amount of Guidance’s share. The customer pays rent of the Guidance’s share in equity. UIF has adopted both murabaha and ijara. Ijara Finance practices lease-to-own, with the rights of ownership vested in a trust. Late payment is penalized in all the cases. Similarly all expenses, taxes and insurance premium are paid by the customer alone, irrespective of the ownership of the property during this process. The sources of funds of all the five institutions are largely the government sponsored Freddie Mac or Fannie Mae or both. The case for sharia compliance is different in different cases. Guidance has a very impressive list of its sharia supervisory board and consists of Sheikh Taqi Usmani, Abu Sattar Abu Ghudda, Sheikh Nizam Yaqubi, Sheikh yusuf Talal DeLarenzo, Mohammad al-Gari and Imran Usmani. Devon Bank claims to have independently developed the product by using the writings of an internationally known scholar on Islamic finance (name not given). Lariba devised its programme in light of the fatwas published in Arabic and the methodology outlined by Sheikh Taqi Usmani. UIF claims to enjoy the support of Sheikh Nizam Yaqubi, Sheikh Yusuf DeLarenzo and Dr. Ahmad Shleibak. Ijara Loans programme was created by a Board of internationally recognized sharia scholars in 1996. Sheikh Mufti Umar Ismail is their sharia advisor and Mufti Muneer Akhoon is the chairman of sharia advisory board.