Interest-Free Financing for U.S. Muslims

July 1 -- When the Siddiqui family, complete with toddler and 5-year-old, had outgrown their current home, they did what most Americans do — they took out a mortgage and bought a new one.

But, unlike most Americans, Rushdi and Asma Siddiqui won't be paying any interest on their loan.

That's because they are are taking advantage of an Islamic home-financing initiative launched this May by HSBC Bank in New York, and known by its Arabic name of murabaha.

A so-called murabaha sale is one in which there is no interest paid. Instead, the price of the object to be financed is known and the buyer agrees to pay a premium over that initial price. In such a contract, the financial institution must own the item at the time the customer buys it from the institution.

Explains Rushdi Siddiqui: "The bank bought the property from the seller and immediately sold it to us with a monthly commitment to pay."

No-Interest Charge Cards Also Available

Islamic financing is not necessarily a new phenomenon in the United States. Multinational institutions, such as Citigroup, and community-based companies, such as Lariba in California, have been offering Islamic programs for decades.

"In Islamic financial history, back in the '80s, programs were community-based, like Lariba, but most lacked financial capital," says Rushdi Siddiqui, whose day job is as director of the Islamic Group at the Dow Jones Indexes. "Now there are bigger institutions that opened Islamic windows."

Indeed, HSBC's initiative reflects not only a growing demand for Islamic products, but also the bank's willingness to translate international Islamic financing principals to the level of personal finance.

In fact, the murabaha mortgages are just one of three popular Islamic financial services recently launched by HSBC, according to Tariq Al-Rifai, its U.S.-based vice president of Islamic banking. The other two services are no-interest charge cards and interest-free checking accounts.

The Devil Is in the Details