Islamic Financing

BOB ABERNETHY, anchor:  Here at home, amid all the losses in the banking and housing worlds, there is one conspicuous exception.  It’s the Islamic practice of doing business without charging or paying interest on a loan.  Throughout the recession so far, Islamic financing has been growing at 10 to 15 percent a year.  Lucky Severson has the story.


LUCKY SEVERSON:  Not too long ago, it would have been almost impossible for General and Candice Sutton to buy a home without violating their faith. They are both devout Muslims who want to finance their new home by following Islamic law, known as Sharia, which forbids paying interest.

CANDICE SUTTON:  For us, religion and our faith is — we’d like to incorporate it to every means of our life.

GENERAL SUTTON:  Islam is not just a religion — it’s a way of life.  So when you look at a way of life, you have, you know, different ethical things that you should do, should not do not do.  We are not supposed to be paying interest because that’s not in our way of life.

SEVERSON:  Ibrahim Warde is a professor at Tufts Fletcher School of Law and Diplomacy.  He teaches a class that’s increasingly popular on Islamic banking and finance and says it was the Prophet Muhammad, himself a merchant, who condemned the practice of charging or paying interest, called “riba” in Arabic.


Professor IBRAHIM WARDE (International Business, Tufts Fletcher School of Law and Diplomacy): There used to be a very common practice of “riba,” which was periodic doubling of the interest.  So, in other words, if you owed money and were unable to pay it, then it would have to be doubled and the whole process would end with enslaving the debtor.  So with the advent of Islam, there was an end to that practice.

SEVERSON:  Candice, who is a transportation engineer, and General, a software developer, are looking for a home closer to work and closer to their mosque.  Their real estate agent is Roma Elhabashy, a Muslim himself, who felt guilty about buying his own home through conventional financing.

ROMA ELHABASHY:  I waited for a long time then I made a mistake and bought a house with regular financing and I couldn’t live with it so I actually had to sell the house for that reason.  Taking advantage of someone who needs money by charging them more money doesn’t make sense.

SEVERSON:  He says it’s not just Muslims who are inquiring about Sharia financing.  It’s non-Muslims as well who share General Sutton’s point of view.


Mr. SUTTON:  A lot of the finance companies who are not taking interest, you know, they don’t seem to be as hurt as much as these other companies.  And, you know it’s all driven by money. So it’s all about greed.  You charge interest, you want more money and that just leads to more things that leads to a bad path.

UNIDENTIFIED LOAN OFFICER (Guidance Residential, talking on phone):  How much of a loan are you looking for?

SEVERSON:  This is Guidance Residential, in Reston, Virginia, one of a growing number of companies catering to Muslim home buyers, by devising ways to finance mortgages without levying interest charges.  Candice and General plan to finance their home through Guidance.

Here’s how it works: Candice and General would make a qualifying down payment and Guidance and the Suttons would then purchase the home as co-owners.  But instead of charging interest, Guidance would assess a monthly tax-deductible fee.  Hussam Qutub, is the Director of Communications for Guidance, which has financed more than 5,000 home purchases since 2002.

HUSSAM QUTUB (Director of Communications, Guidance Residential):  Now, in that monthly payment portion, there are two elements.  One is the acquisition element — acquisition portion of the payment.  And the second is the charge.


SEVERSON:  The fee?

Mr. QUTUB:  The fee.  With every payment the customer is increasing his or her shares in the property and ours are decreasing.  And at the same time, their fee is decreasing because we owning less.

SEVERSON:  Professor Warde says skeptics who argue that the finance fee is really not much different than interest are missing the point.

Prof. WARDE:  The example I typically give is religiously inspired dietary rules, in that if some people don’t want to eat food that is not halal or kosher, then a nutritionist can come to them and say, “Why are you doing that?”  But for these people, for religiously minded people, how the food is prepared is quite significant.

SEVERSON:  There are other significant differences.  For instance, the late fee at Guidance is never more than $50.  Sharia mortgage holders are also less likely to default on their payments.

Prof. WARDE:  If there’s nothing else you could do in terms of paying a debt and you’ve tried to repay it, then the logic of the Sharia is that the loses should be shared by both the borrower and the lender.  But it is definitely a sin to be able to repay and yet not to repay it.


SEVERSON:  But it would also be a sin for Guidance to foreclose on someone without trying to work things out.

Mr. QUTUB:  If for some reason the property value, just as we are seeing today, decrease and we are stuck with proceeds that are not even close to what we are owed on our share, we won’t pursue our partner.  We won’t pursue their savings accounts.  We won’t go after their personal assets.

Prof. WARDE:  One interesting statistic about Muslims in the U.S. is that although they tend to be wealthier than the average American, the rate of home ownership is lower, so most sociologists explain that in terms of some misgivings that Muslims might have about interest-based mortgages.

ZULIKHA HUSSAIN:  I know a lot of friends who were just renting homes and they were not comfortable because of the simple fact that they strongly had this feeling that it’s definitely a sin to do when you are taking interest or even giving back interest.


SEVERSON:  When Zulikha Hussain and her husband and four kids were relocated to Northern Virginia, she was aware of Sharia financing but her husband’s company required that the family use conventional mortgage financing.  Zulikha decided to refinance the house the Sharia way so she could perform the fifth pillar of Islam, the pilgrimage to Mecca, with a clear conscience.

Ms. HUSSAIN:  It’s recommended that you are free of debt before make that pilgrimage. That’s why a majority of the Muslims prefer not to get into that particular situation.

SEVERSON:  Sharia compliant financing is now moving beyond home mortgages to investments in things like mutual and equity fund.  For the past 10 years, there’s been a Dow Jones Islamic Market Index where investment opportunities are monitored to see that they comply with Sharia law.  Islamic market investors, it turns out, have not been hit as hard as conventional investors in the current economic meltdown.

Prof. WARDE:  Sharia compliant mutual funds do not invest in financial institutions.  And given the collapse in the value of financial institutions in the last couple of years, Islamic mutual funds have done quite well, which is also one reason why many non-Muslims have been attracted to Islamic mutual funds.


SEVERSON:  The Dow Jones Islamic index also excludes investments in things like gambling, alcohol, cigarettes, pornography and pork, as well as companies that are highly leveraged or that have shown ethical lapses.

Mr. QUTUB:  Certainly there was an incredible amount of speculation, incredible amount of unknowns and risks were taken.  And that is something that we know in Islam is really heavily prohibited, where you are in essence almost gambling, and gambling is something that is not permissible in Islam.  But for Muslims like Zulikha, Sharia compliant financing is about more than money.

Ms. HUSSAIN:  I feel like God’s showing me, “Hey, I’m giving you this opportunity to refinance.  I’m giving you this opportunity to see that this is out there for you.”  So when I do go and perform the pilgrimage, I’ll feel very good about myself that I have completed all the tasks that I needed to do.

SEVERSON:  Sharia financing and investments are still only a tiny portion of the financial market, but growing.

For RELIGION & ETHICS NEWSWEEKLY, I’m Lucky Severson in Ashburn, Virginia.

  • Earl Williams

    Requesting information to contact Guidance Residential. Thank you.

  • Tarek

    Thank you for an excellent program

    Very interesting

  • Ibrahim Nour El-Din

    I would like to know more about Islamic Finance

  • David Johnson

    Islamic finance is what the world is in deep need for. However, it need not be just a label. It has to be really Islamic.

  • Ayman Nassar

    Good review, a few points to note about Islamic Financing is that joint ownership requires,

    1. Joint sharing in risk and reward (property price increase and decrease) – is part of the definition of ownership means in Islam, and it provides responsibility and fairness to all parties.

    2. The concept of selling money (lending with interest) is prohibited.

    3. Acceptable Islamic financing are:
    3a. Joint ownership (stocks, partnerships)
    3b. Good lending (no interest/usury)
    3c. Mudaraba (entrepreneurship or partnership with effort and experience)

    As of today there are no 100% Islamic compliant financing vehicles in the US, the efforts mentioned above are good and trying to strive to get close to the fair and just Islamic financing, however due to regulations and other factors there are some gaps, such as the joint risk sharing in a partnership model. Islamic financing has been around for 1430 years from the days of Prophet Mohamed and it is implemented in many parts of the World, we in the US are just behind.

    There is no question that Islamic financing is fair, just and solid, providing fair social rewards to all parties involved, unlike other means of financing.

    Usury/interest was prohibited not only in the Quran, but Jesus and Moses were ordered to tell the people to not engage in usury. (proverbs 28:8, Ezekiel 18:8, Exodus 22:25)

  • Al Kansaasi

    One thing I found that may probably be unIslamic is the late fees. As per my knowledge, late fees (even though they are fixed) also constitute riba. The penalty for late fees should be a fixed fee but not payable to financing company but rather to a charity. This provides the incentive for the customer to pay on time, and protects the financier from profiting from the laziness/whatever reason of others.

    Maybe today’s Islamic financial institutes do that at the backend. Another point they may say is it is just 50 bucks. The point isnt its just 50 bucks. Interest whether its 0.1% or 10% its unlawful. So is profiting from others misfortune.

    And God knows best..

  • Motaz Zahran

    The experience of how to circumvent Riba with Mr.Roma Elhabashy is truly exceptional. He is honest and trustworthy and personifies exemplary qualities of integrity and credibilty through an enlightened attachment to his belief. Approaches to counter the practice of Riba is just one example.

  • Robert

    That’s the exact reason(usury) Christ drove the moneychangers out of the temple. Same gang…2000 years later.

  • Bill Jones

    I have long considered Islam’s avoidance of debt based systems (esp. Monetary systems) to be one of the principal reasons for their demonization by western Elites.

  • Shams Khan

    All Islamic countries should band together and come up with their own financing system based on Islamic principles. Only a functional system can convince the populations to adopt it. SO far there is only talk about the Islamic banking and economic system.

  • Abu Jahl

    The charge is another name for interest. You foam of the sea Muslims are so gullible.

  • Alex

    Islamic financing and Islamic banking have been operating in Canada for at least 50 years. Like anything else there pluses and minuses to all money dealings, but I found Islamic financing excellent for people who intend to stay in the home long time, and do not mind sharing the ownership with the lender. I was a broker and sold many properties using this type of financing. Best of all there were never any foreclosures, ever, and can never be using Islamic finance

  • MLS

    To Earl Williams: I’m looking too, and found these:
    1),item,734770525.aspx (an info-video)

  • Mary

    You can type “Guidance Residential” into your search engine, to find more information. Of course you can also search for competitors offering similar products.

  • Bagruh

    No wonder the western capitalist system hates the Islamic financial system!



  • Aftab Khan

    Muslim in USA definetly need Islamic financing for realizing their dream of owning home and getting wealthier without sacrificing their faith.May Allah reward each and everyone who work tirelessly to provide real shariat complaint financing product .

  • American

    Today the only economic solution is interest free world. You name the industry…be it Auto, Housing, Hospitality, banking, etc…they all got immersed into making money thru interest. There are lot of ways even without interest still you can make money. See the example of Guidance and Lariba,etc. These cos. are still making money with charging the interest.

  • mohammed

    because an institution call itself an islamic one does not mean it is. I asked many scholars to assess the so called Islamic financing institutions and most of them consider them unIslamic. Additionally, it is known that financing with these institutions is very costly so that is almost selective and the payments are usually higher that the ones from regular interest financing. The spirit of Islam is totally absent from all the “islamic” financial institutions I’ve known. It’s unfortunately another way peoples’ beliefs are used to suck them dry. there are just too many unknowns, I prefer renting I am only a visitor to this world, I will lave very soon and I have no intention to tarnish my book.

  • Hassan

    `And If the debtor is in a difficulty, grant him time till it is easy for him to repay. But If you remit it by way of charity, that is best for you If you only knew` Quran Sura Al-Baqra`.280

  • Hassan

    Islamically, charging late fees itself is a Riba` and forbidden

  • Jacob Crawford

    A very impressive article. As a Christian I find it refreshing that charging interest is against the Islamic laws. Whether it is called interest or usury, it is also against God’s laws found in the old testament. I believe it is possible to derive a system of financing that respects both factions if the emphasis is taken off greed and put on trust in God and his laws.

  • ali choate

    i am 63 and a hajji, islam is the solution to all
    the questions,speak to a trained shaykh and join an islamic credit union like the one in TRINIDAD is so good a feeling to be riba free in america i should know you must be educated first it will open a new world for you.

  • Rana kawa

    how you calculate the missing of buyer payment in your program? does the buyer loose percenatge of ownership transfered to guidance share? please inform

  • kamal toorabally

    very inspiring information. Kamal

  • SS

    Excellent Article, check out they have the best rates and terms I’ve seen in all 50 states and Canada.


    @ Ali Choate

    Can An American Purchase A Home In The US Via Financing From The Credit Union You Mentioned Above In Trinidad?

    As A New Revert It Is Hard To Know If Institutions Like Ijata Loans, Lariba-Whitter, Guidence Residential, Etc (who do business in Texas) Are 100% Islamic No-Reba.

    I Don’t Want The Worry Of Finding Out Later That They Are Not And I Have To ReFinance.

    Please contact me via:

    Also • anyone else with knowledge and experiance in this field and/or with any of the above listed institutions can contact via this email too • Insha Allah!

  • Ahmad

    Hear from a Mortgage Broker – This company is fraud and inducing fear of Islam and selling their loans to clients who do not have any knowledge of how loan origination works. They are doing exact same thing as traditional banks are doing – from originating through closing. Look at their loan documents and disclosures that are being produced by Guidance. It’s same as the traditional banks. They sell their loans to Freddie Mac just like other mortgage brokers do, so they must follow the Federal guidelines for them to sell the loan and to be compliant. You simply cannot bring Sharia to United States, and this country will not allow it and everything is tightly regulated. If you must follow Sharia, then please do not get any loans from Guidance, any banks, or mortgage brokers like me. Just buy in cash or rent.