Chicago's Muslim Banking Solution

Islamic lender's mortgage plan

The rules of Islamic lending - primarily disallowing interest - are not new, but can they offer a way out of America's home mortgage mess?

The Chicago-based Devon Bank is one of the largest Muslim banks in the United States, and some experts think it's style of lending is likely to grow.

For example, Devon Bank is underwriting the loans for the state New Markets program in Minnesota, Minnesota Public Radio reports.

Islamic financing doesn't allow interest, but "cost-plus-sale" financing allows for 30-year fixed-rate deals.

"The process is different, but the outcome will look the same," says one official. "We wanted to be as conventional as possible, while respecting the tenets of Islam."

Can those tenets work for those who don't practice Islam? Consider: Devon Bank says that in five-and-a-half years of Islamic lending, it hasn't lost a penny.

"Islamic financing now accounts for more than 75% of the bank's mortgage portfolio, and Devon has made mortgages compliant with Islam's sharia law in 36 U.S. states," according to USA Today.

According to its website, "Devon Bank opened originally as the Devon North Town State Bank on June 9, 1945, just before the end of World War II. Our founders were local merchants who believed that the community known then as North Town, on Chicago’s north side, would benefit from a community bank.

"Today, 63 years later, Devon Bank has remained an independent community bank with deep roots in our communities and with the dedicated customer commitment envisioned by our founders. Owned and operated by the Loundy family since 1953."

Hedge Fund Monthly, in its report "Islamic Finance (Finally) Taking Root in North America," calls Devon Bank "the clear leader in Islamic commercial real estate finance."

The lesson might be that thinking creatively about mortgages and lending instead of trying to rebuild the old structure might prove more viable in the future.

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