Dr. Yahia Abdul-Rahman
The Pride of the Muslim Community
American Finance House: LARIBA
Islamic Financing is Coming to the Mainstream
more information, please visit www.lariba.com
Elliot Blair Smith, USA TODAY
2/24/2005 11:14 PM Updated
2/25/2005 4:09 AM
Calif. - On a sunny afternoon, Yahia Abdul-Rahman ignores the broken air
conditioner in his mortgage-finance company's cramped Southern California
office. Around him, three-dozen employees, some of them Muslim women veiled in
scarves, toil amid the rising heat and stacks of paper clutter.
Abdul-Rahman reads the Koran outside the Al-Fatiha Islamic Center in Azusa,
Calif. by Robert Hanashiro, USA TODAY
lending officer Syed Rehman, 64, his crumpled white shirt rolled up to the
elbows, is attempting to close a loan in Urdu, the language of his native
Pakistan. In English, he complains that his crowded corner, which he shares with
two assistants, is "boiling."
the boss, Abdul-Rahman, 60, is as cool as his blue-green eyes. The CEO and
founder of American Finance House-Lariba already has succeeded in two previous
careers, as a chemical engineer and financial planner. Now, he is creating his
legacy in a third: Lariba is among a handful of lenders that dominate this
country's small but growing $600 million Muslim mortgage market.
by the Islamic religion's sharia laws, which prohibit earning or paying interest
on borrowed money, the market is expected to double in the next few years as
American Muslims with conventional home loans look to refinance with Islamic
interest-free mortgages resemble lease-to-own contracts. Buyers build equity
while paying rent and principal. One difference: Lariba homeowners immediately
take title while the finance company retains a lien. Its competitors offer
are not run-of-the mill marketing people who find a niche and run with it,"
says Abdul-Rahman, elegantly attired in a dark suit and sleek tie. "We are
humble servants of the community."
3 1/2 years after the Sept. 11 terror attacks put the U.S.-Muslim relationship
in sharp focus, the nascent Islamic finance market is undergoing profound
authorities have identified several Muslim charities as terror-financing fronts.
And scandals have erupted at two banks with ties to the Middle East: Arab Bank
in New York and Riggs National Bank in Washington, D.C. But the attention also
is contributing to the modernization and development of some ancient articles of
mutual funds and even hedge funds are beginning to flourish, as are
interest-free mortgages and business loans. The nation's estimated 1.1 million
American Muslim households, long deprived of sharia-compliant financial
products, are benefiting as a result.
Siddiqui, director of the Dow Jones Islamic Index Group, which tracks sharia-compliant
investments, says, "Frankly, with 9/11, as with any tragedy, there was a
silver lining. One of the silver linings … was a revival by Muslims to look
inward to how they can be more compliant (with the Islamic faith)." As a
result, he says, American Muslims have become better educated about alternatives
to Western financial products.
trickle of new capital is changing people's lives.
Sacramento, hospice physician Khurram Ali, 37, a Pakistani immigrant, was living
in a rented apartment with his pregnant wife and young son when recently he
found a $383,000 house for sale near a Muslim mosque and school.
gone without Muslim comforts during the 4 1/2 years he practiced medicine in
South Dakota, Ali feels at home in California. But he was unwilling to buy the
property without an interest-free loan.
felt so strongly that if we were not able to get financing - which was possible
- we were going to stay in our rented apartment," says Ali, who paid Lariba
an "implied" interest rate of about 6% on his loan, making it slightly
more expensive than conventional mortgage rates.
implied rate reflects the rental income and any transaction fees calculated as a
percentage of the purchase price over the life of the lease-to-own contract. It
is tax deductible to the homeowner, just as mortgage-interest expense is to
central Los Angeles, Fouzia and Asfaq Shabandri - Muslim immigrants from India -
recently acquired their fifth KFC franchise with interest-free financing from
in Cedar Park, Texas, Altaf Hussain, 43, a semiconductor marketer, just
purchased a $475,000 house for his family through Lariba. "With our kids
growing up, we wanted to set an example for them," he says. "I wanted
a competitive rate. But, to get out of paying interest, I would have been
willing to pay a little higher to get into a Muslim mortgage."
an imam - or Muslim scholar - likens himself to the small-town banker with a
good heart played by actor Jimmy Stewart in It's a Wonderful Life. He screens an
edited version of the movie for new employees and often retells the hallowed
Hollywood tale of how townsfolk who invested small savings together created a
better life for all.
Lariba's founding in 1987, in a room with a broken window over Abdul-Rahman's
garage, the state-regulated finance company has underwritten more than $200
million in automobile, business and mortgage loans. It originated nearly half
that total in 2003, the most recent year for which Federal Reserve data are
turn, secondary-mortgage marketers Fannie Mae and Freddie Mac purchase the
mortgages from Lariba for their portfolios, recycling cash back into the
year, Abdul-Rahman took the helm of a small national bank, the Bank of Whittier,
with $26 million in assets, as a vehicle to expand into 49 states. Clients who
require more funds or more competitive terms than Lariba can provide are
referred to the bank. Competitors:
Guidance Financial Group in Reston, Va., a sharia-compliant mortgage finance
company founded by French-Syrian economist Mohamad Hammour. It is building a
nationwide retail presence, supported by funding from secondary-mortgage
marketer Freddie Mac.
Senior Vice President Rehan Dawer likens the swift development of Muslim
mortgage products in this country to the advent of bottled water: initially
expensive, eventually indispensable.
Devon Bank in Chicago, a Jewish family-owned bank, launched Muslim real estate
and business-loan products in January 2003 in one of the country's most diverse
neighborhoods. It joined a handful of traditional financial institutions,
including HSBC in New York and University Bank in Michigan, in exploring the
attorney David Loundy, a son of Devon's founder, says he solicited approvals
from federal banking regulators and the Sharia Supervisory Board of America for
the bank's Muslim mortgages, which now account for half of its small but
fast-growing mortgage portfolio. He also developed savings accounts that replace
interest income with profit sharing. The deposit accounts await Securities and
Exchange Commission approval.
Several Muslim-Americans, including principals of Samad Group in Kettering,
Ohio, and Shape Financial in Falls Church, Va., are developing other sharia-compliant
the son of a former Egyptian undersecretary of education, came to the USA as a
chemical engineering graduate student at the University of Wisconsin in February
1968. He had $17 in his pocket and no scholarship. With a job as a teaching
assistant, he earned master's and Ph.D. degrees.
was destined for good fortune. Upon graduation, Abdul-Rahman joined oil company
Atlantic Richfield, later Arco, in Texas, and earned several patents for his
work extracting oil from shale.
ability to predict commodities prices eventually led him to create his own
energy-trading firm and to be named to the board of a local bank. He came to
live in one of Houston's biggest houses, in one of its best neighborhoods.
used to make a seven-figure salary and bonuses," Abdul-Rahman observes.
"(But) by the 10th day of the month, our account was empty. My wife used to
say: You must be married to somebody else. Where does the money go?"
wife, Magda, says 70% of their income went to pay for their fancy house, which
they financed with a conventional bank loan. Meanwhile, at bank board meetings,
he grew uneasy after learning that some directors were defaulting on their loans
to the institution.
was 1983 and the Texas oil bubble was about to burst.
that a crack in property values would follow, Abdul-Rahman listed his house with
a real estate agent for $565,000, even though an enraged neighbor was listing
his at $800,000. The couple moved into an apartment.
friends would come and weep and cry" over the apparent reversal of their
fortunes, he says. Meanwhile, the neighbor's asking price fell by two-thirds.
moved on to a job in Southern California as a private banker at Shearson Lehman,
a predecessor of Citigroup Smith Barney, and he applied his money-raising skills
to underwriting Muslim mosques and schools.
launched Lariba with the help of about 20 Muslim investors who raised $200,000,
enough to finance one interest-free mortgage. "I said, 'Put in $10,000
(apiece), and if I lose it, don't hate me for the rest of your life,' " he
the early days, Lariba financed a home or car purchase only once every six
months. But over time, Abdul-Rahman built a profitable business. The big
breakthrough came in December 2002, when Fannie Mae pledged to purchase $10
million of Lariba's mortgages.
Mae account manager Colette Porter says Abdul-Rahman's efforts fit a broader
trend. "Faith-based organizations have become trusted (financial) advisers
in underserved communities," she says.
Fannie Mae's support, mortgage loan applications at Lariba doubled from 27 a
month in 2002 - to 54 a month in 2003, according to Federal Reserve data.
Guidance, the climb was faster. Its mortgage applications soared nearly tenfold
to 123 a month, totaling $278.9 million in 2003, up from just $22.4 million in
2002, its first year of business, according to the Federal Reserve. Mortgage
applications don't constitute lending commitments, but most applications in the
Muslim niche are funded, market analysts say. Through 2004, Guidance says, it
has funded transactions totaling $400 million.
to this push, Muslim mosques, newsletters and TV channels now are abuzz with
talk about Islamic finance. It convinces Abdul-Rahman that he is living the lead
role in It's a Wonderful Life.
he hopes to reach a broader market. "What we're trying to preach here is
common sense," he says. "Live within your means. Never just follow the