Texas Credit Union to Run on Traditional Muslim Model
By Gina Ragusa Credit Unions Online
Plans are underway for a new Muslim-based credit union in Texas that runs on fees, not interest.
Jafari No-Interest Credit Union is designed for Shia Muslims in the Houston, Dallas and Austin area. Instead of paying for overhead through loan interest, Jafari No-Interest Credit Union will cover costs with fees.
According to the Houston Business Journal, credit union organizers said that charging interest goes against the principles of the Islamic faith.
A recent article published in Your Middle East stated, “Islamic rules on banking, which date from the time of the Prophet Mohammed, are fairly straightforward. Charging interest on loans is prohibited. Lenders and borrowers should share risks. Nobody should take on excessive liabilities.”
In addition to not charging interest on loans the credit union does not plan to pay interest on deposits either.
The current blueprint is to charge members a $3 monthly fee with the intent of having the fee cover overhead expenses, while the credit union tries to keep costs down.
“As we scale up the number of members, and we keep our costs down, the $3 fee would cover the majority of our expenses,” Imran Dhanji, one of the credit union’s seven organizers told the Houston Business Journal.
However, in the meantime, the credit union may also charge other fees to cover operating expenses, such as a $7 monthly voluntary fee to cover costs not met by the $3 fee. Also, a $25- to $250-per-month voluntary fee may be charged to help the credit union build capital for loans. According to the credit union’s business plan, borrowers may also be charged a $10 monthly fee.
Muslim Based Credit Unions Are Not Entirely New
Although no interest credit unions aren’t commonplace in the U.S. the concept isn’t entirely new.
“I don’t think this is a brand new concept in the U.S., but we don’t have any in our jurisdiction right now,” Betsy Loar, assistant commissioner and general counsel for the Texas Credit Union Department told the Houston Business Journal.
Like Jafari No-Interest Credit Union, the North Jersey FCU division is not run on interest. According to NewJersey.com, the credit union partnered with third party underwriter, Guidance Residential to allow the credit union to offer Shia-law approved loans while remaining compliant.
Although loans can be offered through fees, North Jersey’s strategy was to create a partnership between the buyer and the lender to buy a house and then, over time the borrower would buy out the lender's share, with the lender taking a previously agreed-upon profit. According to James Giffin, vice president of marketing at North Jersey FCU, the buyer ultimately pays as much for the loan as they would if they had gone with a conventional mortgage.
The division creation was a welcome addition for North Jersey FCU members and has been an enormous problem for many Muslims. Member, Isa Suqi told NewJersey.com what a relief it was to have this type of financing. "Now everyone who wants to be compliant can be."
According to Imam Mohammed Qatanani, leader of the Islamic Center of Passaic County in New Jersey, paying or receiving interest with usury is "one of the major sins in Islam, a greater sin than adultery."
The state of Texas does have another Muslim-run credit union in Sugar Land; Pioneer Muslim Federal Credit Union ($63.46 Sugar Land, TX). However Pioneer operates along the lines of the traditional credit union model.