Banking The Unbanked “In Good Faith”

“You shall not lend on interest to your brother. You may lend interest to a foreigner; but to your brother you shall not lend interest.” Tough words to hear for a bank, but with every obstacle there is an opportunity. These words are written in the book of Deuteronomy, so technically this would apply to both Jews and Christians, but only the strict apply this to their business and personal practices. Practicing Muslims, however, are growing in numbers in the U.S. and have more strict rules when it comes to interest on loans.

Innovative bankers, however, have seen this as an opportunity to capitalize on a niche market in both the Orthodox Jewish and Muslim communities in large cities. Devon Bank in Chicago, for instance has opened up a different business called “Abraham’s River”, offering noninterest based loans. Banks purchase properties for instance on behalf of the customer, and finance it to the customer at a higher price over time. Growing populations of Muslims are popping up in the nation’s smaller cities in large numbers where regional banks thrive.  

Normally, a capitalized loan structure like this means high risk for a bank because they technically are buying the property at no money down, but the reasons are religious and not due to bad credit or that the customers don’t have money down to pay for the loan. The lender can still do a background check, and manage risk through down payments.   With the mortgage business increasing in competition, regional banks near large ethnic communities could find that the regional service could be an opportunity overlooked by competitors. This opportunity can be particularly strong for banks that are focused on diversity in terms of hiring practices as they can tap into employees that might be familiar with some of these communities. Since interest rates are projected to rise, careful thought on the terms of a loan structure will continue to be required. Devon Bank lists these types of loans on the website in the following states: Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana, Michigan, Minnesota, Missouri, North Carolina, Ohio, Oregon, Texas, Utah, Virginia, and Wisconsin.