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Valley News – Vermont credit union developing a lending program that complies with Islamic law

Valley News - Vermont credit union developing a lending program that complies with Islamic law
Written by Publishing Team

A credit union in Vermont is developing what will be the state’s first sharia-compliant lending program, with the goal of helping more Muslim families buy homes.

Islamic law prohibits the collection and payment of interest by lenders and investors, which means that many existing loans, including mortgages, do not comply. In general, relationships that favor the lender are prohibited or considered taboo.

Sharia-compliant financing models include arrangements in which the bank buys property for the customer and leases it back, or when the bank and the customer together buy the property and agree to share in profits and losses.

Timothy Carpenter, senior director of lending at Opportunities Credit Union, which is developing the framework, said the organization had not worked out all the details but was looking to create a model in which it and its clients would share ownership of the home.

The credit union has locations in Burlington and Winowski.

He said many organizations across the country offer Islamic finance, but none currently in Vermont. One such institution is Devon Bank in Chicago, which according to its website provides Sharia-compliant financing in about 35 states.

Carpenter said one reason this type of funding is not yet available in Vermont is that the state does not have a large Muslim population, and the demand is greater in other states. He also said the products the credit union is considering are likely to need special approval from Vermont officials, and won’t be available until at least the end of the year.

The Lending Manager is working with Imam Islam Hassan, of the Vermont Islamic Society of South Burlington, on developing the new model.

Hassan said he knows five families who want to buy homes but are reluctant to do so with a financing option that does not comply with Islamic law. He said there are more Vermonter Muslims currently renting, but they would use such a model.

“If we had that in place, a lot of people would have benefited from it,” Hassan said.

The imam said that a loan could be allowed in certain situations, but in general, most Muslims would not feel comfortable managing interest.

Islamic finance is based on the belief that money should not have any value in and of itself. Instead, money should merely be a means of exchanging products and services.

“The basic concept is that the commodity will not be money,” Hassan said. “It will be home.”

Another organization that saw a need for Islamic-compliant funding in Vermont was the Burlington-based Champlain Housing Trust, said Julie Curtin, director of home ownership for the organization.

The Trust’s Shared Equity Program allows people to buy a home with no down payment and with a discounted mortgage. But this second piece, Curtin said, prevented many families from participating in the program because of their faith.

“When they know they need to get a mortgage — the regular and conventional mortgage with interest — they end up not being able to move forward,” she said.

Curtin said the trust was also asked about buying one of the new housing units she’s currently building in Winooski without an interest-bearing loan.

Looking ahead, she said, “we expect there will be more interest.”

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