Vermont Credit Union Developing First Halal Lending Program

Buying a house could be a challenge for many Muslims who want to abide by Islamic law that forbids riba or bank benefits.

Therefore, a Vermont credit union is working to help members of the Muslim community buy homes by developing the state’s first lending program that complies with Islamic Shari`ah law.

To reach this goal, Timothy Carpenter, a senior lending manager at Opportunities Credit Union, is working with Imam Islam Hassan of the South Burlington-based Islamic Society of Vermont on developing the new model, VTDigger.

Imam Hassan said that many families in Vermont already want to buy houses but don’t wish to do so through a financing option which does not comply with Islam.

“If we had that in place,” Hassan said, “a lot of people would take advantage of it.”

Halal Loans

In Islam, loans for profit are always connected to real economic activity, like products, benefits and services.

The purchaser, investor, or financer is guaranteed a return based on the profit generated by that real activity. It is not possible to extend a loan for any profit that is not a direct share of the return on real activity.

As for an interest-based loan, liability to pay a return is incurred without being connected to real economic growth. This is why Islam prohibits it and permits alternative instruments like cost-plus deferred payment (bay` ajil) and advance payment of goods (salam).

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

Islamic finance has grown substantially in recent decades across the world, becoming one of the fastest growing financial industries.

Today, it has global assets exceeding $2 trillion and expected to reach $3.8 trillion by 2023.

Sharia-compliant finance differs from conventional banking in key ways, the most notable being a prohibition on charging interest and investing in ethically compliant companies.

Islamic banks and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.