Shaykhs are Chic in Muslim Finance Boom

Cassandra Uretz

February 15, 2004

Abdulkader Thomas, the tall, Caucasian executive standing at the chalkboard in crisp blue pinstripes, has spent more than ten years developing sophisticated financial products for Muslim-Americans along strict religious guidelines, then selling Wall Street bankers on the idea that negotiating with shaykhs could lead to big profits.

Thomas is President and CEO of SAMAD American Holding Corporation, a successful Islamic investment firm based in Virginia, and publisher of the American Journal of Islamic Finance. Columbia University, where Thomas was invited to lecture this evening on money management for devout Muslims, houses a world-class graduate business program ranked third in the world.

Yet Thomas never expected that his informal late-night talk, wedged into a back room on a chilly February night, could be a hot topic. He is visibly shocked by the overflow crowd that gazes up at him and hangs on his every word. The students glow with privileged Ivy League confidence. There are Arabians, Pakistanis, Africans and New York Jews. Elder Muslims are sprinkled among the young, a little shy but determined to speak up.

Nearly sixty listeners are crammed into a classroom meant to hold thirty, and an hour after Thomas' presentation starts, more still arrive. Serious young men leap to offer veil-swathed women their seats. Chic public policy undergraduates exchange notes with middle-aged social workers who have traveled from New York's outer boroughs to hear the lecture. Chairs stretch out the door and down the hall. After two hours in the airless room, Thomas tries to wrap the lecture up. His audience won't leave. He mops his brow.

Muslims in the crowd are hungry for information, and a little defensive. They don't quite believe that mainstream America wants their money, or could help them succeed if they trusted it with their savings. But as their numbers grow, they are reassured. Hands start to raise.

Exactly what does Thomas mean, demands a grandmother in a hijab headscarf, by "lease to own" and "return on capital?"

Financiers like Thomas have spent the last ten years building the Islamic market at home and abroad so that such women can carve a place for themselves in the new economy. As Muslim consumers like her gain clout, Western companies are scrambling to build bridges to their world and, more importantly, their money.

Estimates on the number of Muslims living in the United States vary from 2 to 8 million, and only a fraction demands investment strategies for a devout lifestyle. But experts say their relatively small market is worth a potential $250 billion in revenue.

Islam relies on Sharia'a, collected traditional interpretations of holy scripture, to define its legal and social practice. Because Islam views money as a means to an end, finance is inseparable from community life, and ideally used as an agent of public service. Under Sharia'a, goods and services should be exchanged through respectful relationships that take into account their participants' spiritual integrity.

Conversely, Western secular culture trades money as a commodity with its own intrinsic value. If a business deal makes money, Westerners consider it successful, no matter how unethical its foundation. As a result, Thomas said, many devout Muslims remain aloof from Western investment altogether, and lose access to many benefits of a modern economy, such as buying a home or saving for college education.

But Muslim financiers argue, with increasing success, that there are ways consumers can participate and flourish in the market without betraying their religious scruples.

Sharia'a is capitalistic, said Thomas, because it promotes investment risk to obtain profit. But Islam also funnels profit back into the community, and shuns the debt generated by interest-dependent economies as socially exploitative. Sharia'a forbids "riba," accrued interest on the direct trade of money over time, and "gharar," excessive risk-taking or speculation. Returns are based on the utility value of assets and services.

"Money sitting in a corner is not good for the community. That's what Islam discourages, holding for the speculation of making a killing later. When no one else has money, that's when you start making outrageous and obscene profits," agreed Aly Abdel Aziz, President of LARIBA USA-East, a national organization that helps Muslim families manage their savings, invest, and build capital.

Sharia'a also bans investment in gambling, alcohol, entertainment, and weapons manufacture, which are considered sinful or immoral industries. According to Thomas, Muslim commercial contracts must be more transparent and reliable than their secular counterparts, charge no service fees, and require more written documentation.

Islamic banking was once considered too small a niche to tempt conventional financial institutions, but got a boost in the mid-1990s when the Dow Jones Company created its Islamic Market Index. Shaykhs from the United States and five major Muslim nations oversee the Index through a supervisory board, which screens an international array of Sharia'a-compliant industries against consistent standards.

With the venerable Dow Jones as a benchmark, wary market regulators took a more positive view of Islamic scholars passing judgment on financial transactions, said Thomas, and gave the market more freedom to grow.

"Regulators said, it's systematic. I can work with this," said Thomas, who credits Dow Jones with convincing the Federal Deposit Insurance Corporation to permit profit sharing deposits for Islamic customers.

The Dow Jones global index also helps investors choose ethically sound companies to jumpstart their portfolios.

"A lot of people use the index to fish from. If you are building a portfolio based on Islamic principles, you know these companies have been scrubbed and screened," said Bernadette O'Sullivan, Assistant Editor for Dow Jones Indexes.
With international cooperation and standards came consumer trust. Thomas said his financial services company has seen a 20-fold business increase since 2000. LARIBA is licensed in 36 states, and offers rates on a par with national trends.

"We try to compete with the market, because we don't want to penalize people for being compliant with their religion. Because we stay competitive, more people are becoming aware of our presence. The last few years have been very busy," Aziz said.

Today, Islamic banking is innovating at every level. In 2003, the Bahrain Monetary Agency partnered with Citigroup to offer a $250 million Islamic bond issue. Britain's Fyshe Group has created numerous Sharia'a-compliant financial products, including an advisory stockbroking board and a property investment company.

In an especially complicated move, the U.S.-based Permal hedge fund group recently created a Sharia'a-approved equity hedge fund worth $250 million with the Saudi Economic & Development Company, so that investors could profit from falling share prices without shorting on stock.

First-time buyers, many with little or no investment experience, are making tentative steps towards owning homes through companies like LARIBA. The financial services company will negotiate with a client to determine a desired property's rental value. The company then purchases the home, and its client pays the balance in graduated rent payments to avoid "riba" interest. Although some Muslims decry these products as a slippery slope into Western corruption, Aziz said companies like his have found new ways to help their neighbors secure financial independence.

"It's a gratifying experience," Aziz said. "There are lots of people who are not savvy in financial areas. They may be looking for the moon, only to get into a tough situation. We represent both sides. Our motive is making a reasonable profit, but we try to give honest advice. People look upon you as someone who has been helpful to them."

(Updated April 9, 2004)