Culturally Informed Banking:

1. Culturally Informed Banking: Shari’ah Compliance in Lewiston-Auburn Bates College Anthropology 339 Report to Androscoggin Bank November 9, 2009

2. BACKGROUND

3. Shari’ah Law • Shari'ah – Sacred law, the combined set of individual and social duties • Interest (“Riba” in Arabic) is mentioned in four sections of the Qur’an • General Interpretation of Shari’ah Law • Free enterprise and right to personal holdings • Usury is forbidden • Replace interest (Riba) with charity (Zakat) • Fixed fee, but not percentage, may be set in advance to cover costs • Speculating on futures without first establishing ownership is forbidden

4. Shari’ah Compliant Mortgages • Murabaha – fixed-rate mortgage • Musharaka – floating-rate mortgage in the form of rental, joint ownership • Ijara – floating-rate mortgage in the form of rental, through partnership entity

5. Guidance Financial • A subsidiary of Guidance Financial Group • Provides Shari’ah-compliant (Riba-free) home loans and mortgages. • Shari’ah board: approves their product’s Fatwa • Product: Declining Balance Co-Ownership Program

6. Devon Bank • Community bank in Chicago, IL • Islamic banking since 2001 • Religious approval from Shari’ah Supervisory Board of America • Home financing • Business financing • Accountability to Muslim customers

8. Islamic Banking in Malaysia • The Islamic Banking Act of 1983 (IBA) • In 1997, Bank Negara Malaysia (the central bank) created the National Shari’ah Advisory Council as the highest authority on Islamic banking in Malaysia. • Islamic banking products in Malaysia: -Deposit services -Retail financing -Card services -Banking services

9. Islamic Banking in UK • Islamic Bank of Britain established in 2004 • As of 2008, 5 Islamic banks, also 23 conventional banks, including Lloyds and HSBC, offering Shari’ah compliant services • Emphasis not just on domestic retail, but on high finance

10. Islamic Banking in Somalia • Salaam African Bank • In neighboring Djibouti • Somali owned and operated • Amal Bank • Part of national remittance company • Works to financially connect relocated Somalia refugees around the world with people in Somali • Dayax Islamic Bank • Malaysian bank • In the process of opening

11. Distinguishing Bantu and Ethnic Somali Somali Bantu Ethnic Somali Come from herding populations Higher perceived status Muslim Began arriving in L/A in 2001 • Brought to Somalia during the 18th and 19th century as part of the Arab slave trade • Farming background • Disadvantaged • Muslim • Began arriving in L/A 2005

12. ETHNOGRAPHIC RESEARCH: RELIGIOUS LEADERS

13. Ethnic Somali • “Profit and Primary”- Service fee and Principle • Credit Check- Co-signers • Need for Loans- Businesses, homes, cars, Portland Mosque • Consequences of Violating Islamic Law- Unhappiness, social ostracization

14. Somali Bantu • “Profit to Live On”- Specific destination of money • Credit Check- Past billing history • Need for Loans- Businesses, etc- Lewiston mosque • Consequences of Violating Islamic Law- Ostracization, dishonor

15. General Conclusions • A System Based on Trust and Honesty • Pre-Determined Rates and Fees • Dialogue and Action

16. ETHNOGRAPHIC RESEARCH: POPULACE

17. Demographics and Methods • We interviewed both Ethnic Somalis and Somali Bantu in the local Lewiston-Auburn area about their views on the ethics of Shari’ah law concerning loans and bank services. • Our sample included members of the community from various professions and socio-economic backgrounds.

18. Popular Interpretations of Shari’ah Law From our research, we found that many members of the Somali community had varying opinions regarding their interpretation of Shari’ah (Muslim) law. However, the following are fundamental beliefs that were shared amongst all who were interviewed: • No money-begetting-money • No paying or receiving interest in loans, accounts, mortgages, etc. • Profit is allowed, e.g. buying a house for $100,000 and selling for $150,000

19. Popular Interpretations of Shari’ah Law: Continued • Cannot reclaim goods of property that has been partially paid for if an individual defaults on his/her loan • In case of default on loans, agreements must be struck ahead of time

20. Services Needed from Bank The following are banking services and conditions that would be beneficial for the local Somali and Bantu population: • Saving accounts with no interest (already available) • Fixed rates and consequences for default on loans agreed upon between bank and individual beforehand • Business and home loans are first priority and car loans are of secondary importance • Financial literacy to help population make independent, informed decisions regarding personal finances

21. Previous Compliant Solutions • The Somalis in Lewiston-Auburn area are currently able to finance their homes, business, cars, education, etc. through the use of several Shari’ah compliant methods since they do not involve interest: • Upfront payments (through savings) • Share-holding • Rotating savings system (i.e. ayuto) • Honor financing

22. Potential Compliant Solutions • Some of the interviewed members of the community referred to the following models as possible Shari’ah compliant solutions that could be adopted by the Androscoggin Bank: • Rent-to-own • London, Devon Bank, and Malaysian Models • Fixed-rate loans

23. Suggested Tips for Compliant Banking Conditions and Services • Technical fees are acceptable as long as they are included and transparent in the original agreement, i.e. regular fixed monthly charge for processing paperwork, employee salaries, etc. • Prefer short-term loans • Plain, easy to understand language regarding loans and paperwork • Income-based, fair market share payment plans • -Dialogue between the bank and customer

24. RECOMMENDATIONS FOR ANDROSCOGGIN BANK

25. Recommendations: Products • In recommending these products, we sought to align the needs of the community with Androscoggin’s objectives. • Short Term: Home Purchase and Small Business. • Long Term: Education and Insurance. • Ties to existing Androscoggin offerings.

26. Musharaka: A Case Study • Name: Gulaid Abdullahi (35) • Occupation: Supply Chain Manager at a Food Processing Company • Marital Status: Married (w/ 2 children) • Looking for: Housing Credit Facility that is Shari’ah Compliant • Answer: Androscoggin Bank’s Musharaka or Declining Balance Co-Ownership Program • But how would it work? Source: Google Images

27. Musharaka: A Case Study • Step 1: Gulaid and Androscoggin agree to be co-owners of the property. • Step 2: The two parties buy the home, and ownership in the property is determine by each party’s down payment • Step 3: Gulaid makes monthly payments to Androscoggin. Part of the payment is a utility fee for full use of the home, and the rest is a payment to increase Gulaid’s ownership in the property. • Step 4: Over the course of the arrangement, Gulaid purchases all of Androscoggin’s ownership stake and becomes the sole owner of the house

28. Connecting the Community to Androscoggin Bank • Trust Building • Educational Programs • Introducing the community to the bank in general, as of now most members of the population are banking with Bank of America and TD Bank • Increasing Financial Literacy • Integrating community members into the planning and education component of these policies • Perhaps creating a counsel of Islamic scholars • Liaison to the community

29. Discursive Banking (ex. the new Portland Office) may be a selling point with this population because of the need to personalize • The contract must detail all fees upfront in plain language, no hidden fees. • The contract must outline how the payments of the loan would be put to use by the bank • Money making money is forbidden • Staff Salaries, Infrastructure, etc are acceptable • Creation of a self-contained Shari’ah Compliant Fund • Regulatory Challenges

30. Going Forward