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Following religion into finance: Bank finds market for Islamic financing

by Maggie Hyde
Jan 14, 2010

Salim Shelia

Maggie Hyde/MEDILL

Salim Shelia owns an Indian-Pakistani bakery on Devon. He was able to renovate it using an Islamic loan.

Devon Bank

Maggie Hyde/MEDILL

Since 2003, Devon bank has been providing financial services compliant with Islamic law to people in the community and around the country.


Maggie Hyde/MEDILL

The new storefront was one of the improvements the Shelia brothers were able to make because of the loan.

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Islamic banking terms

Since these finance products do not technically involve interest, they are not called loans. Here is what the Arabic names mean:

Murahabaan arrangement where the bank buys the house, and then sells it back to the customer at a pre-determined profit agreed upon by the bank and customer. Word is derived from the word “welcome” in Arabic.

Ijara – a flexible rent-to-own arrangement, where the customer agrees to buy the property completely before the end of the lease. The Arabic word means “rent” or “lease.”

Sukkuk – an Islamic, Shariah-approved bond. These are risk-sharing funds that distribute profits and risk equally among investors. They are only invested in halal product industries.

Halal – legitimate in Islamic law.

Haram – forbidden under Islamic law. Examples include pork, alcohol and gambling.

Laws forbidding interest, usury and disproportionate profiting by lenders were forbidden in Christianity, Judaism and Islam in ancient times. Today, some Orthodox Jews, Christian denominations, such as the Amish, and Muslims are the groups that still hold to these principles.

Although practiced in medieval times, Islamic banking was re-born in Egypt in 1963 as an economic experiment.

When Salim Shelia and his brother Mohammed needed funds to renovate a new building for their business, Tahoora Sweets and Bakery, they were in a difficult place.

Being devout Muslims, they could not take out a regular loan because Islamic law, or Shariah, prohibits Muslims from participating in transactions involving interest. The two approached Devon Bank with their problem, and the bank adapted its loan services to fit with Islamic law, getting approval from the Shariah Board of America.

“We were the first to have that kind of a loan,” Mohammed Shelia said.

“We insisted on it,” Salim Shelia said.

And so, in 2003, Devon Bank started its Islamic finance division.  A community bank in West Rogers Park, it has since expanded and adapted what it calls its faith-based financing services, becoming a pioneer in Islamic finance in the U.S.  The Islamic Finance News recently recognized it as the “Best Islamic Bank” in the U.S. in 2009.   

Devon Bank Vice President David Loundy said that the bank made the decision to offer Islamic finance options after several individuals and business owners in the community, such as the Shelia brothers, approached them.

“This is customer-driven,” he said.

Once word got out that they offered Shariah-approved commercial and home financing, Loundy said he realized that the bank had found a large unmet need in the community.

“People started coming out of the woodwork,” he said.

Now the bank offers Islamic banking services in 38 states, with plans to expand to all 50. The bank is also looking into auto and education financing, and Shariah-approved investment products.

Thanks to the bank, Illinois is the only state offering two commercial and residential finance options for Muslims. 

The two products now available are called murabahas and ijaras.  These arrangements can resemble a typical mortgage financially, but with different legal ramifications. For example, instead of a 30-year mortgage, in a murabaha the bank will purchase the house for a customer, and then the customer will work towards buying it back at a pre-determined higher price from the bank. The cost comes out close to that of a typical mortgage and any difference is usually due to tax or transaction fees, Loundy said.

“It’s a legal and status difference,” he said.

It is a nominal difference, too. They are not technically loans, of course, because there is no interest changing hands.

Those applying for Islamic services go through the same process and background checks as those seeking regular loans.

Because Devon is a community-based bank, Loundy said he is able to see first-hand the improvements that these banking options have made in the area. He tries to attend at least one closing a year, to stay in touch with what the bank’s services can mean to community members, many of whom are first- or second-generation immigrants.

“It reminds you of why you do this,” he said.

Before Devon Bank started this division, he said, Muslims were sometimes forced to compromise on either their religious values or their economic dreams.

“These are people who want to assimilate into the community and follow their religion,” he said. “Some of them would not have another option.”

The Shelia brothers echoed this sentiment. When asked what they would have done had Devon Bank not offered them Islamic financing to renovate their bakery on Devon, Mohammed Shelia said he honestly didn’t know.

“Then it would have been a big question,” he said.