A Vermont credit union is developing what would be the state’s first Islamic-compliant loan program to help more Muslim households buy homes.
Islamic law, or Sharia law, prohibits the collection and payment of interest by lenders and investors, which means that many existing loans, including mortgages, do not comply. In general, relationships that favor the lender are prohibited or considered haram.
Funding models that comply with Islamic law include arrangements where a bank purchases a property for a client and re-leases it, or where a bank and a client jointly purchase a property and agree to share the profits and losses.
Timothy Carpenter, senior director of loans at Opportunities Credit Union, which develops the framework, said the organization hasn’t worked out all the details but is looking to create a model where she and her clients share ownership of a home.
The credit union has branches in Burlington and Winooski.
Several organizations across the country offer Islamic funding, he said, but currently none in Vermont. One of these institutions is the Devon Bank in Chicago, which according to his website provides funding in accordance with Islamic law in approximately 35 states.
Carpenter said that one of the reasons that this type of funding is not yet available in Vermont is that the state does not have a large Muslim population and there is more demand in other states. He also said the products the credit union is considering would likely require special approval from Vermont officials and would not be available until at least the end of the year.
The Loan Manager worked with Imam Islam Hassan of the South Burlington-based Vermont Islamic Society on the development of the new model.
Hassan says he knows five families who want to buy houses but are reluctant to do so through a finance option that does not comply with Islamic law. And there are more Muslim Vermonters currently renting, he said, but would use such a model.
“If we had that in place,” Hassan said, “a lot of people would benefit from it. “
The Imam said that it may be permissible to take out a loan in certain situations, but in general, most Muslims would not feel comfortable with the management of interest.
Islamic finance is based on the belief that money should have no value on its own. On the contrary, money should simply be a means of exchanging products and services.
“The underlying concept is that the commodity will not be money,” Hassan said. “This will be the house.
Another organization that has seen a need for Islamic law financing in Vermont is the Burlington-based Champlain Housing Trust, said Julie Curtin, the organization’s director of homeownership.
The trust’s shared equity program allows people to buy a home with no down payment and with a reduced mortgage. But this second element, Curtin said, prevented several households from participating in the program because of their faith.
“When they learn they need to get a mortgage – the regular, traditional, interest-bearing mortgage – they end up not being able to proceed,” she said.
Curtin said the trust was also asked about purchasing one of the new condominiums it is currently building in Winooski without an interest-free loan.
Looking ahead, “we expect there will be even more interest,” she said.
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