A Vermont credit union is developing what would be the state’s first lending program that complies with Islamic law, aiming to help more Muslim households buy homes.
Islamic law, or Shariah, prohibits the collection and payment of interest by lenders and investors, which means many existing loans, including mortgages, don’t comply. In general, relationships that favor the lender are prohibited, or considered haram.
Financing models that do comply with Islamic law include arrangements where a bank buys property for a customer and leases it back, or where a bank and customer jointly purchase property and agree to share in the profits and losses.
Timothy Carpenter, a senior lending manager at Opportunities Credit Union, which is developing the framework, said the organization hasn’t worked out all the details but is looking to create a model where it and its customers share ownership of a home.
The credit union has locations in Burlington and Winooski.
Several organizations across the country offer Islamic financing, he said, but currently none in Vermont. One such institution is Devon Bank in Chicago, which according to its website provides Islamic law-compliant financing in about 35 states.
Carpenter said one reason this type of financing isn’t yet available in Vermont is that the state does not have a large Muslim population, and demand is greater in other states. He also said the products the credit union is considering likely would need special approval from Vermont officials, and wouldn’t be available until at least the end of the year.
The lending manager has been working with Imam Islam Hassan of the South Burlington-based Islamic Society of Vermont on developing the new model.
Hassan said he knows five families who want to buy houses but are hesitant to do so through a financing option that doesn’t comply with Islamic law. And there are more Muslim Vermonters who currently rent, he said, but would use such a model.
“If we had that in place,” Hassan said, “a lot of people would take advantage of it.”
The imam said it can be permissible to take out a loan in certain situations, but in general, most Muslims would not feel comfortable with managing interest.
Islamic finance is based on the belief that money shouldn’t have any value in and of itself. Rather, money should just be a way to exchange products and services.
“The underlying concept is that the commodity will not be money,” Hassan said. “It will be the house.”
Another organization that’s seen a need for Islamic law-compliant financing in Vermont is Burlington-based Champlain Housing Trust, said Julie Curtin, the organization’s director of homeownership.
The trust’s shared equity program allows people to buy a home without a down payment and with a reduced mortgage. But that second piece, Curtin said, has kept multiple households from participating in the program due to their faith.
“When they learn that they need to get a mortgage — the regular, traditional, interest-bearing mortgage — they end up not being able to proceed,” she said.
Curtin said the trust also has been asked about buying one of the new condominiums it’s currently building in Winooski without an interest-bearing loan.
Looking forward, “we expect that there’ll be even more interest,” she said.
