Transcript Moving Forward

Culturally Informed Banking:
Shari’ah Compliance in Lewiston-Auburn
Bates College
Anthropology 339
Report to Androscoggin Bank
November 9, 2009
BACKGROUND
Shari’ah Law
• Shari'ah – Sacred law, the combined set of individual and
social duties
• Interest (“Riba” in Arabic) is mentioned in four sections of
the Qur’an
• General Interpretation of Shari’ah Law
• Free enterprise and right to personal holdings
• Usury is forbidden
• Replace interest (Riba) with charity (Zakat)
• Fixed fee, but not percentage, may be set in advance
to cover costs
• Speculating on futures without first establishing
ownership is forbidden
Shari’ah Compliant Mortgages
• Murabaha – fixed-rate mortgage
• Musharaka – floating-rate mortgage in the form of rental,
joint ownership
• Ijara – floating-rate mortgage in the form of rental, through
partnership entity
Guidance Financial
• A subsidiary of Guidance Financial Group
• Provides Shari’ah-compliant (Riba-free) home loans and
mortgages.
• Shari’ah board: approves their product’s Fatwa
• Product: Declining Balance Co-Ownership Program
Devon Bank
• Community bank in Chicago, IL
• Islamic banking since 2001
• Religious approval from Shari’ah Supervisory Board of
America
• Home financing
• Business financing
• Accountability to Muslim customers
Islamic Banking in Malaysia
• The Islamic Banking Act of 1983 (IBA)
• In 1997, Bank Negara Malaysia (the central bank) created
the National Shari’ah Advisory Council as the highest
authority on Islamic banking in Malaysia.
• Islamic banking products in Malaysia:
-Deposit services
-Retail financing
-Card services
-Banking services
Islamic Banking in UK
• Islamic Bank of Britain established in 2004
• As of 2008, 5 Islamic banks, also 23 conventional banks,
including Lloyds and HSBC, offering Shari’ah compliant
services
• Emphasis not just on domestic retail, but on high finance
Islamic Banking in Somalia
• Salaam African Bank
• In neighboring Djibouti
• Somali owned and operated
• Amal Bank
• Part of national remittance company
• Works to financially connect relocated Somalia
refugees around the world with people in
Somali
• Dayax Islamic Bank
• Malaysian bank
• In the process of opening
Distinguishing Bantu and Ethnic Somali
Somali Bantu
• Brought to Somalia during
the 18th and 19th century
as part of the Arab slave
trade
• Farming background
• Disadvantaged
• Muslim
• Began arriving in L/A 2005
Ethnic Somali
• Come from herding
populations
• Higher perceived status
• Muslim
• Began arriving in L/A in
2001
ETHNOGRAPHIC RESEARCH: RELIGIOUS
LEADERS
Ethnic Somali
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“Profit and Primary”- Service fee and Principle
Credit Check- Co-signers
Need for Loans- Businesses, homes, cars, Portland Mosque
Consequences of Violating Islamic Law- Unhappiness, social
ostracization
Somali Bantu
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“Profit to Live On”- Specific destination of money
Credit Check- Past billing history
Need for Loans- Businesses, etc- Lewiston mosque
Consequences of Violating Islamic Law- Ostracization,
dishonor
General Conclusions
• A System Based on Trust and Honesty
• Pre-Determined Rates and Fees
• Dialogue and Action
ETHNOGRAPHIC RESEARCH: POPULACE
Demographics and Methods
• We interviewed both Ethnic Somalis and Somali Bantu in
the local Lewiston-Auburn area about their views on the
ethics of Shari’ah law concerning loans and bank services.
• Our sample included members of the community from
various professions and socio-economic backgrounds.
Popular Interpretations of Shari’ah Law
From our research, we found that many members of the Somali
community had varying opinions regarding their interpretation
of Shari’ah (Muslim) law. However, the following are
fundamental beliefs that were shared amongst all who were
interviewed:
– No money-begetting-money
– No paying or receiving interest in loans, accounts, mortgages,
etc.
– Profit is allowed, e.g. buying a house for $100,000 and selling
for $150,000
Popular Interpretations of Shari’ah Law:
Continued
– Cannot reclaim goods of property that has been partially
paid for if an individual defaults on his/her loan
– In case of default on loans, agreements must be struck
ahead of time
Services Needed from Bank
The following are banking services and conditions that would
be beneficial for the local Somali and Bantu population:
• Saving accounts with no interest (already available)
• Fixed rates and consequences for default on loans agreed
upon between bank and individual beforehand
• Business and home loans are first priority and car loans are
of secondary importance
• Financial literacy to help population make independent,
informed decisions regarding personal finances
Previous Compliant Solutions
• The Somalis in Lewiston-Auburn area are
currently able to finance their homes, business,
cars, education, etc. through the use of several
Shari’ah compliant methods since they do not
involve interest:
• Upfront payments (through savings)
• Share-holding
• Rotating savings system (i.e. ayuto)
Potential Compliant Solutions
• Some of the interviewed members of the community
referred to the following models as possible Shari’ah
compliant solutions that could be adopted by the
Androscoggin Bank:
• Rent-to-own
• London, Devon Bank, and Malaysian Models
• Fixed-rate loans
Suggested Tips for Compliant Banking Conditions
and Services
–Technical fees are acceptable as long as they are
included and transparent in the original agreement,
i.e. regular fixed monthly charge for processing
paperwork, employee salaries, etc.
–Prefer short-term loans
–Plain, easy to understand language regarding loans
and paperwork
–Income-based, fair market share payment plans
–-Dialogue between the bank and customer
RECOMMENDATIONS FOR ANDROSCOGGIN BANK
Recommendations: Products
• In recommending these products, we sought
to align the needs of the community with
Androscoggin’s objectives.
• Short Term: Home Purchase and Small
Business.
• Long Term: Education and Insurance.
• Ties to existing Androscoggin offerings.
Musharaka: A Case Study
Source: Google Images
• Name: Gulaid Abdullahi (35)
• Occupation: Supply Chain
Manager at a Food Processing
Company
• Marital Status: Married (w/ 2
children)
• Looking for: Housing Credit
Facility that is Shari’ah Compliant
• Answer: Androscoggin Bank’s
Musharaka or Declining Balance
Co-Ownership Program
• But how would it work?
Musharaka: A Case Study
• Step 1: Gulaid and Androscoggin agree to be coowners of the property.
• Step 2: The two parties buy the home, and ownership
in the property is determine by each party’s down
payment
• Step 3: Gulaid makes monthly payments to
Androscoggin. Part of the payment is a utility fee for
full use of the home, and the rest is a payment to
increase Gulaid’s ownership in the property.
• Step 4: Over the course of the arrangement, Gulaid
purchases all of Androscoggin’s ownership stake and
becomes the sole owner of the house
Connecting the Community to
Androscoggin Bank
• Trust Building
• Educational Programs
» Introducing the community to the bank in general,
as of now most members of the population are
banking with Bank of America and TD Bank
» Increasing Financial Literacy
• Integrating community members into the planning and
education component of these policies
» Perhaps creating a counsel of Islamic scholars
» Liaison to the community
 Discursive Banking (ex. the new Portland Office) may be a selling
point with this population because of the need to personalize
 The contract must detail all fees upfront in plain language,
no hidden fees.
 The contract must outline how the payments of the loan
would be put to use by the bank
» Money making money is forbidden
• Staff Salaries, Infrastructure, etc are acceptable
 Creation of a self-contained Shari’ah Compliant Fund
 Regulatory Challenges
Going Forward
Legislature
Androscoggin
Bank
Muslim
Population
Imams