Stephen Ranzini runs University Bank, a community bank in Michigan, and tells NPR that he was running a traditional bank until one day a Muslim customer told him he wasn’t serving the local community because the bank wasn’t compliant with Sharia law – which prohibits the acceptance of interest. That stumped Mr. Ranzini who wondered how was his local bank going to make any money without interest?
Mr. Ranzini tells NPR, “There are banks in the Muslim world that have thought about this, and one thing you can do is replace interest with something like a rent payment. The customer, the person who wants to buy the house, doesn’t own it right away. Instead, the bank buys the house and puts it in a legal entity called a trust. Then, the customer makes monthly payments for, say, 30 years. Each month, they own a little bit more of that trust until, finally, the house is all theirs.”
Despite some regulatory issues, Mr. Ranzini started offering this product and though some Muslims saw this as a “religious loophole,” many appreciated the program, like customer Iltefat Hamzvi who purchased his home this way. “I’m part of the U.S. bank system. I’m doing something that is religiously compliant,” says Mr. Hamzvi. “And I’m doing right by my family by giving them a house in a good neighborhood.”