A Special Kind of Financing

A Special Kind of Financing
Central Bank is a small Midwestern savings and loan institution that manages
$3 billion in assets. It competes with 16 other financial institutions for
customers; most of those other institutions have substantially larger
holdings. To better serve its customers and attract a larger customer base,
Central Bank conducted a financial-need survey of the people who lived
in the area.
The survey revealed some interesting and culturally relevant

information. Muslims represented a sizable minority in the community,
making up about 8% of the overall population. However, a review of the
bank registry revealed that few Muslims, if any, banked at Central Bank.
The results of the survey were puzzling. Given the large numbers of
Muslims in the community, the management wondered why there were
no Muslim customers at Central Bank.
To answer this question, Central Bank invited a group of local

Muslims to meet and discuss their thoughts about financing and how
their ideas related to the financial services offered by the bank .The
meeting was a real eye-opener for the bank management. The Muslims’
ideas about banking were very different from the traditional Western
beliefs about banking.
During the discussion, the management learned that the principles of

Islam strongly influence the banking attitudes and behaviors of Muslims.
The principles of Islamic finance were set forth in the Koran more than
14 centuries ago. For instance, Koranic law forbids paying or receiving
interest. These principles stress that money is only a medium of exchange
and should not be used to make more money. From the Islamic point of
view, the human element in a business venture is more important than the
money used to finance the venture. Furthermore, according to Islamic
finance, the provider of capital and the user of capital should share
equally in the risk of a business venture.
These ideas about finance were different from the way Central Bank
thought about them. Central Bank was not accustomed to the way
Muslims viewed money as a medium of exchange. Having been
enlightened through these discussions, the management at Central Bank
felt challenged to develop a financing program that was more in line with
the attitudes and values of Islamic finance principles.
In order to attract the business of Muslim customers, Central Bank

created and began offering two new types of mortgage financing, called
ijara and murabaha. Ijara is a finance plan in which the bank buys a
home for a customer and leases it to the customer, who pays rent plus a
portion of the property purchase. Murabaha is a transaction in which the
bank buys the home and sells it to the customer at an agreed-upon
markup, and the customer pays for the home in installments over 15 to 30
years. Both ijara and murabaha are consistent with Islamic beliefs that
prohibit Muslims from paying or receiving interest. In these two types of
transactions, money is used to purchase something tangible, but money is
not used to make money. Central Bank received favorable legal rulings
(fatwas) from some of the leading Islamic legal scholars in the United
States and the world to validate these types of financing.
Central Bank’s Islamic finance plans have become quite popular

.Although Central Bank has been successful with these plans, it has also
met resistance. Some people have expressed strong disapproval of special
finance programs specifically geared to the Muslim population. Others are
against it because it mixes issues of faith and public finance. However, the
resistance has not stopped Central Bank. Central Bank is very proud to be
the only bank in the country to serve the needs of the Muslim community
in this way.
Questions
1. Why do you think banks in the United States have been slow to offer
financing expressly for Muslims?
2. Do you think it is fair to offer one minority group a special banking
opportunity?
3. How does ethnocentrism come into play in this case?
4. How does in-group collectivism relate to Central Bank’s finance plans?
5. How do you think the other banks in the community will react to
Central Bank?

A Special Kind of Financing

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A Special Kind of Financing

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A Special Kind of Financing

The survey revealed some interesting and culturally relevant

To answer this question, Central Bank invited a group of local

During the discussion, the management learned that the principles of

In order to attract the business of Muslim customers, Central Bank

Central Bank’s Islamic finance plans have become quite popular

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