Pious Property: Islamic Mortgages in the United States

2. What Is an Islamic Mortgage?

CHAPTER TWO WHAT IS AN ISLAMIC MORTGAGE? In the aftermath of the attacks of September 11, 2001, Islamic banking came under the scrutiny of the Federal Bureau of Investigation (FBI), the Department of Treasury, and other U.S. government agencies that sought to track and interdict financial transactions that might be linked to global terrorism. The news media quickly generated reports about Islamic charities potentially posing as front organizations for money laundering or terrorist fund-raising, and traditional informal credit associations , like hawala, also suddenly came under suspicion.1 Where just months earlier the mainstream media had promoted the virtues of Islamic banking in a series of newspaper reports and television spots about new interest-free mortgage alternatives for Muslims, suddenly the reports focused on the shady and illicit.2 Now Islamic financial alternatives were reported as having less to do with religious injunctions against interest than with clandestine and possibly criminal financial activities. Surprisingly, however, Islamic banking in the United States underwent considerable growth and expansion after September 11, 2001. In particular, home financing, which many people I interviewed told me was the cornerstone of the “American dream,” has achieved considerable national prominence on the American Islamic banking scene. This chapter attempts to explain why, compared to other countries’ experiences with Islamic banking, mortgage financing has taken on such prominence in American Islamic banking. It also reviews the history of American Islamic mortgage products and reflects on the convergence between the 28 role of interpretation in Islamic jurisprudence and in U.S. banking regulation —a convergence that permits Islamic mortgage experimentation and also muddles the distinctions between conventional and Islamic mortgage products. THE AFTERMATH OF 9/11 AND OTHER FINANCIAL CRISES “Everyone collectively began to hold their breath.” These words, from an Islamic banking specialist in Islamic law, sum up the response of the professionals I interviewed about the impact of terrorist attacks of September 11 on the industry. Like other Americans and people around the world, this professional felt that the events of September 11 had introduced a previously unimaginable degree of generalized insecurity and instability , especially for American Muslims. For Islamic banking, the effects were twofold. First, the suspension of trading in the U.S. stock exchanges, the shock to world markets, the withdrawal of investment capital from U.S. markets, and the lack of confidence in the future had a dramatic impact on all financial and investment activity, including Islamic banking. Second, the immediate assumption that international terrorists professing the Islamic faith were responsible for the attacks cast a chill over American Muslims and created fears of government reprisals against all Muslims—a “witch-hunt,” in the words of one interviewee. The rounding up and detention of American Muslims and immigrants without due process, the freezing of the assets of several Muslim charities , the hate crimes against Muslim individuals and institutions, and the pronouncements of prominent politicians and opinion leaders that Islam itself was to blame lent credence to these concerns, which were not molli fied by the conciliatory and inclusive gestures offered by some government leaders and the media. Where previously Muslims might have worried about anti-Muslim hate crimes committed by individuals or anti-Muslim rhetoric from certain evangelical Christian leaders, now, in addition, “public policy became a factor and public policy became a fear,” as one interviewee put it. Because of the fear that public policy would now target Muslims, many clients of Islamic banking businesses began to withdraw their money and commitment. Interviewees were quick to point out that this reaction, together with a wait-and-see attitude, prevailed not only among clients of Islamic finance businesses but among investors of all stripes. But the prevailing cautiousness took on a particular character for Muslims: “It was What Is an Islamic Mortgage? 29 kind of a minefield,” one interviewee said, especially as those charged with tracing terrorist money began to freeze the assets of Muslim charities . At the same time, most people I interviewed expressed confidence that regulatory agencies “knew about the entities they were dealing with” and that investigators had quickly begun to appreciate the difference between terrorist financing and Islamic financing. Still, many worried that the fears of many American Muslims were not being quelled but in fact stoked by politically driven anti-Muslim rhetoric. Nearly all interviewees noted a renewed anti-Islam discourse, especially among evangelical Christian leaders like Rev. Franklin Graham, as the...