Devon Bank In Chicago Ventures Into Islamic Banking
Chicago, IL (AHN) - Like a growing number of British banks which have discovered it pays to lend to Muslims, a bank in Chicago has recently ventured into Sharia banking. No interest loans now comprise 75 percent of the bank’s mortgage portfolio.
Devon Bank’s Islamic finance products are built on the following principles:
1. Products must be Shariah compliant.
2. Products must fit within both Islamic law and U.S. law, and without the uncertainty caused by separate agreements.
3. Products must make good business sense, both for the Bank and for our customers.
4. We must keep the transaction costs as low as possible.
Quoted from the bank’s website: "Our products are created to meet your needs by a staff versed in both U.S. and Islamic legal requirements, and then submitted to appropriate government regulators and Shariah scholars. We do not use conventional documentation with cover letters and we avoid the uncertainty of documents that do not properly reflect the Shariah requirements.
Wherever possible, our products are designed to resemble conventional banking products with which customers may already have some familiarity. Devon Bank strives to ensure that any extra costs incurred as a result of religious compliance are kept as low as possible. Where there are costs that exceed those of conventional transactions, we try to minimize them and clearly explain why they are being assessed."
With a neighborhood made up of Middle Eastern and Pakistani immigrants, the bank has its hands full of Muslim clients amid a slowdown in the U.S. banking sector. David Loundy, vice president and legal counsel of Devon Bank, told USA Today, "People started coming out of the woodwork" after word spread around the community that the bank was Sharia-compliant.
While Americans are grappling with home mortgage payments, Muslims are awash with cash from the spiraling oil prices, providing them financial means to acquire new homes. According to Moody’s Investors Service, the Islamic finance market has expanded by 15 percent annually since 2005 and is now valued at $700 billion.
Major global banks such as the Deutsche Bank, Citigroup and the Hong Kong and Shanghai Banking Corporation had forayed into Sharia banking through affiliates. Major industrialized countries like the U.K. and Hong Kong are bidding to be Islamic banking hubs in their regions. Other financial institutions have also discovered the good bottom line behind Sharia-compliant business practices. Mortgage investor Freddie Mac started to purchase Sharia-complaint mortgages in 2001. Like Devon Bank, Freddie Mac purchases mortgages from the American Finance House Lariba, University Bank and Guidance Residential.
Islamic mortgages works on a lease-to-own scheme. The bank purchases the house, leases it to the buyer over a period of time until he has paid the full amount. It has double paperwork as the transaction involves two houses.
Local colleges too, like the DePaul University, are catching up by including Islamic banking in some courses. Amir Davoodi, a student at the university, began a course on Islamic banking recently. Davoodi told the Chicago Tribune, "They’re saying there’s a market out there for it. I know I can learn a lot and it will help with my career."
