Minnesota And Sharia Finance

The State of Minnesota goes into the Shariah compliant finance business by SANE Staff,
Fri, March 13, 2009, 10:30:AM

Two days ago, Investor's Business Daily, probably the best editorial page in the country, published an editorial on the now weeks-old story about the State of Minnesota Housing Authority getting involved in offering Shariah-compliant mortgages. The editorial is here.

We had previously blogged about this when Minnesota Public Radio first ran the story and it was picked up by the reliable Jihad Watch. Our blog is here and we promised to look into it.

Here is what we have learned, although the public details remain scant at best. We are working on filing a Freedom of Information Act request with the Minnesota Housing Authority to learn exactly what is going on. But, from what we can tell from the State of Minnesota Housing Authority web site and the published reports, this is what we think is going on.

A non-profit group called the African Development Center began pushing for mortgage assistance for Muslims, mostly new immigrants from Africa (we presume the growing Somali community is one of the target beneficiaries) from the State Housing Authority. This has been in the works for years. Thus, in a June 2005 report (at p. 12 of the pdf) produced by Fannie Mae, the Federal Reserve Bank of Minnesota, and the Minnesota Housing Authority, we find the following:

Interest-Averse Mortgages

While significant mortgage innovations have been made in recent years and several flexible product offerings exist to meet the needs of first-time homebuyers, credit needs. One of the most pressing credit needs in this market is for an interest-averse mortgage product for interest-averse populations. The African Development Center is currently in the process conducting a financial analysis of available interest-averse loan products, including the American Finance House-LARIBA and Guidant Financial product. It is important to note that while both LARIBA and Guidant Financial market a product to interest-averse populations, neither company has a local outlet in the Twin Cities. The African Development Center’s objective for conducting a financial analysis of interestaverse products is to provide accurate and transparent pricing information to consumers who are interested in evaluating a variety of financing options available, including an interest-averse product. The ADC, which currently offers interest-averse small business financing for micro-enterprise entrepreneurs, is also exploring research and development around the creation of an interest-averse mortgage product.
"Interest-averse" is of course code for Shariah-compliant and this is clear from the fact that LARIBA and Guidance, two financial companies catering to the Shariah-compliant markets, are involved in the "financial analysis". If you go to the link provided for Guidance, you'll find that the Chairman of the Shariah Board is none other than Mufti M. Taqi Usmani, probably the most important Shariah authority on SCF in the world and also famed for his role on the Dow Jones Islamic Index Shariah board, HSBC, and many others, the same Usmani who wrote an entire chapter calling for violent jihad by Muslims living in the West against the western infidels. See here for the details of his fatwa.

We have also learned that the program decided upon by the State of Minnesota is being underwritten by Devon Bank. That is, Devon Bank provides the SCF mortgages and the State of Minnesota subsidizes them in some way. We will learn how exactly with the FOIA request. Devon Bank is a small Chicago community bank that has long been in the SCF space, utilizing pre-rulings by the Office of the Comptroller of Currency to approve the purchase and "cost plus" sale of real estate to Shariah-faithful Muslims. The special approval is required because generally federal banking rules prohibit banks from buying or investing in real estate other than what the bank needs for its own offices and as temporarily acquired in foreclosures and the like. What Devon wanted to do was offer Muslims a mortgage with interest but one that Shariah considers not to be interest. How? One popular way was through what is called a Murabaha contract per Shariah that allows the bank to buy the home and then immediately sell it back to the real buyer-borrower who then pays "cost PLUS". The PLUS of course represents the interest at the going rate for 30 years. And, lo and behold, the "sales contract" can be paid out over 30 years. Whalla! "Interest Averse"!

But this is all of course a ruse because Devon Bank and the buyer-borrower consider the profit "PLUS" to be "mortgage interest" not cost basis for purposes of the IRS--the tax payer wants the deduction. Also, imagine the bankruptcy complications if a lending institution went bankrupt after issuing hundreds of Cost PLUS mortgages. Were these sales of bank assets subject to being set aside as voidable?

Interestingly, Devon Bank set up its Shariah operations through the good offices of now defunct Sunrise Equities CEO Salman Ibrahim and Shariah authority Mufti Nawal-ur-Rahman. Both of these men were instrumental in establishing the Shariah [Supervisory] Board of America in Chicago which supervises and issues the approving fatwas for the Devon Bank products. (See here and here.)

Ibrahim has since gone on the lam after his Sunrise Equities, a Shariah-compliant investment business, turned out to be a mini-Madoff scheme stealing about $80 million from unsuspecting Muslims. (See also here.) Many of the Muslim victims consider Devon Bank's Mufti Nawal-ur-Rahman to be very much a part of the scheme since he was very close to Ibrahim, and indeed the Shariah [Supervisory] Advisory Board was created by these two men. (See here.) One well-informed community journalist-blogger reports that Rahman has also disappeared, presumably back to his Deobandi masters in Pakistan, including Usmani. (See here.)

Now, fraud among religious groups is hardly new and there is no argument to be made against Shariah simply because of these criminal characters but this does point to why the State of Minnesota's involvement in the African Development Center-Devon Bank scheme is so problematic.

First, Fannie, the Fed Res Bank of Minn., and the State Housing Authority use an expression in their report, "interest-averse", which on its face is misleading and was only used to avoid saying what it is they are doing: using a given religious legal ruling to satisfy the religious desires of a minority group. It is misleading if not fraudulent because there is nothing "interest-averse" about it. All of the SCF mortgages, whether they be structured as cost-plus, or rent-buy back (called 'ijara' contracts per Shariah), are simply interest disguised through a legal fiction. Now, again, there is nothing wrong with legal fictions--form over substance--we use them all the time in the law and accounting. But when the State uses such terms to hide the fact that it is promoting a given religion, that, we suggest, is a fraud employed in an effort to hide what is likely a violation of the Establishment Clause. If they thought what they were doing was kosher (to mix metaphors as it were), why hide behind terminology which is patently misleading if not simply false?

Second, there are many non-Shariah Muslims who don't consider "interest" as we know it to fall within any Islamic prohibition. Even others, who consider themselves Shariah-respectful though not strictly adherent, who understand the prohibition against "riba" to be a prohibition against usurious default rates and charges, not market-based interest. Thus, these federal and state authorities should not have used the fraudulent term "interest-averse", but "riba-averse according to X, Y, Z Shariah religious authorities". In other words, by promoting what the "traditional" Shariah authorities consider "interest", the State is aligning itself not just with one particular religion, but one particular theological-legal choice within that religion. Granted, the Shariah authorities who so hold that riba is what we call interest have an absolute monopoly in the Shariah-Islamic world, that is no reason for a US governmental body to align itself with one group's religious choices over another. This is very much akin to the NY case we cited to in our earlier blog where the federal court held that a city could not pass "Kosher Anti-Fraud" laws which would accept as "truthful" a merchant's claims of "kosher" only when it satisfied Orthodox rules of kashrut.

We leave aside for the moment the even more important policy discussion, which we have carried on here at SANE for years, how and why a state agency would align itself with any form of Shariah which demands our conversion, subjugation or murder (and in that order)?

What we need to find out in the FOIA request is what criteria does the State Housing Authority use to "authorize" one version of "interest-averse" mortgages over another. Why the Devon Murabaha mortgage? How did the State learn that the target minority of African Muslims would accept a Murabaha contract where interest is called "profit PLUS" over say a contract blessed by SANE where we call the interest a "charitable donation" to a worthy cause (i.e., the bank, who in turn makes a donation to the IRS who in turn makes a donation to AIG who in turn offers SCF insurance). Surely Muslims have no problem taking out a loan if all they do is agree to give a donation to some worthy cause? We jest of course because Shariah-faithful Muslims will only accept a mortgage approved by a fatwa issued by a recognized Shariah authority--like Usmani who wants us all converted, subjugated or dead. This points out the problem with the State choosing which religion to support and which version of that religion to support.

On its face, the State of Minnesota has a problem and if it doesn't realize it now, we'll make sure it finds out.