In the past 10 years, North African immigrants have opened teashops, pharmacies, and child-care centers in southwest Minneapolis storefronts that were once boarded up. But many of these entrepreneurs struggled to grow their businesses because Islamic law forbids Muslims from earning or paying interest, known as riba. So they couldn't take out loans or participate in the city's low-interest financing program for small businesses.
"We had to be creative to meet the demand," says Nasibu Sareva, executive director of the nonprofit African Development Center, which brought the idea of creating an Islamic financing program to the city in early 2006. City leaders were unaware of the sharia restriction, but agreed to the plan. Less than a year later, the city's community and economic development department launched the sharia-compliant Alternative Financing Program.
This is how it works: A barber who needs new chairs for his shop goes to the African Development Center or another nonprofit lender that has partnered with the city. The lending partner buys the chairs, splitting the cost with the city, and then resells the chairs to the barber at a 2 percent profit. The barber pays it off in monthly installments. This is called a Murabaha sale.
The first person to participate in the city's program was Shukri Gedi, a 50-year-old woman from the Somali capital of Mogadishu. Gedi had opened Global Clothing and Accessories in the Karmel Mall in 2004 with money from her relatives. She sold headscarves, caftans, and long black robes from her stall in the bazaar.
But when she needed money to import more products, Gedi refused to take out a traditional loan. "We feel it's haram [forbidden], and that brings a lot of stress," says Gedi, who learned about the riba-free financing through the African Development Center.
Gedi says the initial $20,000 loan and a subsequent $25,000 loan helped her keep her store open during the recession. Income from the business has helped put two sons through college, she says. "It feels good to be able to support them with school," says Gedi, who has about $1,000 left to pay off on her loans.
Since launching the program, Minneapolis has made 64 loans worth a total of $1.2 million. It has also partnered with several other nonprofits in the area. Last year, one woman used $40,000 to renovate the building for a new child care center. Another woman who makes gourmet hot sauces got $40,000 for marketing materials and new equipment.
Islamic financing is a relatively new concept in the United States. Only a handful of banks and financial companies provide mortgages and loans that abide by sharia law. The Neighborhood Development Center in St. Paul created the first nonprofit model of riba-free financing in 2001 after Somali entrepreneurs voiced their concerns. It was immediately lambasted on right-wing radio. "They utterly missed the point, but I was a little bit nervous," says Mihailo Temali, the center's CEO. "We were the first in the nation."