At the moment where stock market fell to the deepest gulch and financial industry seems helpless, a small bank with sharia principles-compliant, University Bank, recorded its best performance. The most popular sharia financial product among American muslims is housing mortgage as their alternative method of homeownership.

University Bank, which located in Southeast Michigan where there is also the concentration of the biggest American-Arab community, has first launched its sharia-compliant products eight years ago. Stephen Lange Ranzini, a Roman Catholic, transformed University Bank to fully sharia-compliant after winning American Bankers Association’s 2001 Community Bank Award.

University Bank is only one example among other financial institutions complying sharia principles as a national trend. Other financial institutions such as Devon Bank in Chicago and Guidance Residential in Reston also offer similar mortgage alternative. In 1999 Dow Jones launched Dow Jones Islamic Market Index which adopted sharia law and screened by Auditing & Accounting Organization of Islamic Financial Institutions. The opportunity of grabbing about 7 million American muslims becomes business potential to smart bankers. This market has not been served well so far and during recent financial turmoil, sharia finance has shown its potential success.

Sharia Acceptance in Western Countries

Back to 1999, amid denial of regular loans deemed to be too risky, American banks were instructed by Congress to provide lower rate housing for low and moderate-income borrowers. Banks then lent money for mortgages on homes that the under waged families purchased. As the provider of a secondary market in home mortgages, Fannie Mae & Freddie Mac, purchased mortgages from the lenders. While keeping some of these mortgages, some are securitized to ensure that funds are consistently available to banks that lend money.

We can conclude from above brief story that the current financial crisis was primary caused by the gap between monetary values in the financial market sector and the real sector. The securities issued by Fanny Mae & Freddie Mac underlie their investment on the home purchasing mortgages, which is considered as not a real assets sector. Sharia finance, on the other hand, puts its financial activities on the real ground of economy sectors.

During recent financial downturn, many western countries and bankers start to accept sharia finance. Britain, Netherlands and Switzerland are among western countries that have opened doors for Islamic banks. French now is welcoming Islamic financial products and services, even to get them listing on Paris Stock Exchange. Christine Lagarde, French Finance Minister also announced to open Islamic bank branches in Paris in 2009. It is assumed to catch up potential financial market worth of 500 billion dollars. Despite controversy of worrying Islamic phobia, there is a huge opportunity for banking and financial sectors to enjoy more benefits from muslims community in the world that estimated at least 1.5 billion people in 2008.

This article has been released on xomba.com and here.