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.

Minnesota's Muslim Public School

Wall of silence broken at state's Muslim public school

By KATHERINE KERSTEN, Star Tribune

Last update: April 9, 2008 - 12:45 PM


Recently, I wrote about Tarek ibn Ziyad Academy (TIZA), a K-8 charter school in Inver Grove Heights. Charter schools are public schools and by law must not endorse or promote religion. Evidence suggests, however, that TIZA is an Islamic school, funded by Minnesota taxpayers.

TIZA has many characteristics that suggest a religious school. It shares the headquarters building of the Muslim American Society of Minnesota, whose mission is "establishing Islam in Minnesota." The building also houses a mosque. TIZA's executive director, Asad Zaman, is a Muslim imam, or religious leader, and its sponsor is an organization called Islamic Relief.

Students pray daily, the cafeteria serves halal food - permissible under Islamic law -- and "Islamic Studies" is offered at the end of the school day.

Zaman maintains that TIZA is not a religious school. He declined, however, to allow me to visit the school to see for myself, "due to the hectic schedule for statewide testing." But after I e-mailed him that the Minnesota Department of Education had told me that testing would not begin for several weeks, Zaman did not respond -- even to urgent calls and e-mails seeking comment before my first column on TIZA.

Now, however, an eyewitness has stepped forward. Amanda Getz of Bloomington is a substitute teacher. She worked as a substitute in two fifth-grade classrooms at TIZA on Friday, March 14. Her experience suggests that school-sponsored religious activity plays an integral role at TIZA.

Arriving on a Friday, the Muslim holy day, she says she was told that the day's schedule included a "school assembly" in the gym after lunch.

Before the assembly, she says she was told, her duties would include taking her fifth-grade students to the bathroom, four at a time, to perform "their ritual washing."

Afterward, Getz said, "teachers led the kids into the gym, where a man dressed in white with a white cap, who had been at the school all day," was preparing to lead prayer. Beside him, another man "was prostrating himself in prayer on a carpet as the students entered."

"The prayer I saw was not voluntary," Getz said. "The kids were corralled by adults and required to go to the assembly where prayer occurred."

Islamic Studies was also incorporated into the school day. "When I arrived, I was told 'after school we have Islamic Studies,' and I might have to stay for hall duty," Getz said. "The teachers had written assignments on the blackboard for classes like math and social studies. Islamic Studies was the last one -- the board said the kids were studying the Qu'ran. The students were told to copy it into their planner, along with everything else. That gave me the impression that Islamic Studies was a subject like any other."

After school, Getz's fifth-graders stayed in their classroom and the man in white who had led prayer in the gym came in to teach Islamic Studies. TIZA has in effect extended the school day -- buses leave only after Islamic Studies is over. Getz did not see evidence of other extra-curricular activity, except for a group of small children playing outside. Significantly, 77 percent of TIZA parents say that their "main reason for choosing TIZA ... was because of after-school programs conducted by various non-profit organizations at the end of the school period in the school building," according to a TIZA report. TIZA may be the only school in Minnesota with this distinction.

Why does the Minnesota Department of Education allow this sort of religious activity at a public school? According to Zaman, the department inspects TIZA regularly -- and has done so "numerous times" -- to ensure that it is not a religious school.

But the department's records document only three site visits to TIZA in five years -- two in 2003-04 and one in 2007, according to Assistant Commissioner Morgan Brown. None of the visits focused specifically on religious practices.

The department is set up to operate on a "complaint basis," and "since 2004, we haven't gotten a single complaint about TIZA," Brown said. In 2004, he sent two letters to the school inquiring about religious activity reported by visiting department staffers and in a news article. Brown was satisfied with Zaman's assurance that prayer is "voluntary" and "student-led," he said. The department did not attempt to confirm this independently, and did not ask how 5- to 11-year-olds could be initiating prayer. (At the time, TIZA was a K-5 school.)

Zaman agreed to respond by e-mail to concerns raised about the school's practices. Student "prayer is not mandated by TIZA," he wrote, and so is legal. On Friday afternoons, "students are released ... to either join a parent-led service or for study hall." Islamic Studies is provided by the Muslim American Society of Minnesota, and other "nonsectarian" after-school options are available, he added.

Yet prayer at TIZA does not appear to be spontaneously initiated by students, but rather scheduled, organized and promoted by school authorities.

Request for volunteers

Until recently, TIZA's website included a request for volunteers to help with "Friday prayers." In an e-mail, Zaman explained this as an attempt to ensure that "no TIZA staff members were involved in organizing the Friday prayers."

But an end run of this kind cannot remove the fact of school sponsorship of prayer services, which take place in the school building during school hours. Zaman does not deny that "some" Muslim teachers "probably" attend. According to federal guidelines on prayer in schools, teachers at a public school cannot participate in prayer with students.

In addition, schools cannot favor one religion by offering services for only its adherents, or promote after-school religious instruction for only one group. The ACLU of Minnesota has launched an investigation of TIZA, and the Minnesota Department of Education has also begun a review.

TIZA's operation as a public, taxpayer-funded school is troubling on several fronts. TIZA is skirting the law by operating what is essentially an Islamic school at taxpayer expense. The Department of Education has failed to provide the oversight necessary to catch these illegalities, and appears to lack the tools to do so. In addition, there's a double standard at work here -- if TIZA were a Christian school, it would likely be gone in a heartbeat.

TIZA is now being held up as a national model for a new kind of charter school. If it passes legal muster, Minnesota taxpayers may soon find themselves footing the bill for a separate system of education for Muslims.

Katherine Kersten • kkersten@startribune.com