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Preface: My Story with RF (Islamic) Banking and Finance in America

I came to the United States on my own from Egypt to study for my MS and PhD degrees at the University of Wisconsin-Madison in February 1968.1 had essentially nothing except my BS degree in chemical engineering from Cairo University and a letter from the University of Wisconsin-Madison accepting me as an International Special Student on a trial basis. I did not have the funds to pay for tuition nor for accommodations, books, and other expenses. It was a big challenge for me, but I made it, through hard work, to where I am today managing a pioneering effort in America to establish what I consider a revival of the banking system that built America. Using a platform we call the LARIBA system (, we offer socially responsible, faith-based, and RF (riba-free) banking. Throughout this book, I will abbreviate it as RF banking.

In 1987, a group of dedicated friends invested $10,000 each to start a small company we called American Finance House LARIBA. We gathered $200,000 as the start-up capital. To my knowledge, this was the first time ever a group of American Muslims who immigrated from India, Egypt, Syria, and Pakistan had bonded together to start a joint project that would eventually become an important force in the American Muslim community and in many non-Muslim communities. Our goal was to start a finance company that would operate without the charging of interest and according to the foundations of Islamic law (Shari'aa). Today, in 2009, and after 22 years, the LARIBA shareholders own LARIBA (, the oldest Islamic RF finance company in the United States, and the Bank of Whittier N.A. (, a national bank. The LARIBA System (the finance company LARIBA and the depository institution, Bank of Whittier, N.A.) serves all 50 states in America and services a portfolio of RF Shari'aa-based financing that is worth approximately $400 million. The portfolio includes home mortgages, automobiles, fast food franchises, medical doctors' clinics, dialysis centers, commercial buildings, schools, churches, and Islamic centers. It was, and continues to be, a wonderful journey.

This book is a sincere effort to introduce this new brand of banking — RF banking, which is based on the Judeo-Christian-Islamic value system while upholding the laws of the United States.

I must acknowledge that, after traveling the world and doing business in many nations, I concluded that only in the United States can a new immigrant realize his/her dreams, even with a new idea that might have looked unbelievably outrageous at the time. I am deeply indebted to Almighty God, who created the reasons for me to come to America, start a family, and live here. I am thankful to my fellow Americans of all faiths and backgrounds for making our country, the United States of America, what it is. It is unfortunate that America is viewed internationally through the lens of Hollywood movies and the sometimes controversial aspects of our foreign policy. It is unfortunate that the wonderful average American neighbor, colleague, farmer, worker, professional, student, and volunteer do not get a chance to be fully and fairly represented and exposed to the United States and the rest of the world.

My feeling as a Muslim moving to live in the United States was one of curiosity. Moving to America changed my social standing and grouping; I went from being a citizen of a majority Muslim country to being a member of the Muslim minority in the United States, which was an unknown minority belonging to an unknown religion at that time, February 1968. Reflecting on it, I concluded that God in His infinite wisdom wanted us Muslims in the United States to experience living as a minority. If we were wise, we, the Muslims, would learn from this golden opportunity and better understand how to deal with non-Muslim minorities in the Muslim majority countries. At the same time, we might be able to further enrich a country that was — after all — built by successive waves of immigrants, each bringing something new to the broader culture of the nation. Being a member of the small American Muslim minority created an interesting basic feeling, an instinct and need to discover one's roots and to define whom one really is. That was the beginning of our journey, my wife and I, in the service of Islam in America in the form of serving the American Muslim community and the integration of Islam and the American Muslim community to make them part of the unique American mosaic through interfaith and civic activities.

My story with RF (Islamic) finance began in Dallas, Texas, in 1971.1 had completed my PhD in chemical engineering, and my wife had completed her MS degree in chemical engineering. I got a job at the Production Research Center of Atlantic Richfield Company (ARCO, which is now owned by British Petroleum). At the time, ARCO had just discovered oil in Alaska and was expanding its research on how to produce that oil and transport it south to the mainland under the most severe operating conditions. We moved from Madison, Wisconsin, to Dallas, Texas, in November 1971. We looked for a masjid (mosque) where we could perform our weekly Friday congregational prayers (jum'aa). We started by looking for people with a Muslim last name. The most prevalent and easy name to search for in the phone book was Khan. We called and we got in touch, but we learned sad news: there were no Friday prayers yet in the Dallas/Fort Worth area. We started the first-ever Friday prayers in Dallas, Texas, on Friday, November 26, 1971. Only two persons attended the prayer, which was held at a park behind the Southern Methodist University (SMU) campus — your author and Ghulam Hussein Siddiqui.

The community grew, and we started collecting donations to build an Islamic center of our own, the Islamic Association of North Texas (IANT). We eventually raised approximately $17,000 in donations, and we found a home on a nice-sized piece of land in the city of Grand Prairie, Texas (between the cities of Dallas and Fort Worth), which was selling for approximately $34,000. A medical doctor friend who was on the board of directors, who was more sophisticated because he knew how to borrow from banks, as he had financed his clinic and his convertible Mercedes, suggested that we borrow money from the bank. Members of the community were up in arms because we were entertaining the thought of dealing with interest (riba), which is prohibited in Islam. When I was asked to give an opinion about the issue, I indicated that I was an engineer and a practicing Muslim who takes interest in studying the Qur'aan and Islam, but I knew nothing about money, banking, and finance.

That was the beginning of a journey that gradually took me away from engineering to banking and finance. It was also an amazing coincidence that God created another reason for that transformation. In 1972, the Strategic Planning Group at ARCO was convinced that oil prices would increase drastically because of an impending supply-demand imbalance. ARCO had huge reserves of oil shale in Colorado and “wet” coal in Wyoming. It was decided that the research center would start developing new processes for the production of synthetic oil and gas from shale and coal. I was one of those assigned to the task. I developed a number of processes that were patented by ARCO. The next step was to study the economic feasibility of these new processes. To do that, ARCO, in 1974, agreed to help finance my studies toward an MA degree in international management and finance at the University of Texas at Dallas. There, I chose to study monetary theory, to understand what money is and how money is created, international monetary theory, financial accounting, credit analysis, and international economics.

It was also amazing that God created another reason for me to get a once-in-a-lifetime opportunity to obtain hands-on banking experience. One day in 1974, during the month of Ramadan, while working in my ARCO office in Plano, Texas, I received a phone call from a stranger who said that he was from Kuwait, that he was one of the executive directors of the

World Bank representing Kuwait, and that he was given a mandate from his government to start the Industrial Bank of Kuwait (IBK). When I asked him how he found me, he said that he was looking for an engineer with experience in the petroleum field, preferably one who understood finance and could speak Arabic. It happened that two different persons recommended my name. I went to Washington, D.C., to interview him and was offered a job on the team that would start the IBK. My responsibility was to take care of financing small and medium-sized oil-related development projects and other chemical and petrochemical projects. ARCO management was elated and encouraged me to go. They granted me what the company classified as grade A leave of absence, with a guarantee that my job would be waiting when I was done with the assignment. It was a wonderful experience that introduced me to the process — and the associated challenges — of starting up a bank. The bank developed an industrial development plan for Kuwait. We financed projects ranging from mega-sized petrochemical plants to offshore drilling rigs to projects that were as small as juice packaging facilities and cookie manufacturing plants. In 1975,1 returned to Dallas. I became a U.S. citizen in 1976 and completed my MA degree, while my wife completed her MS degree in physics and a PhD in environmental engineering.

At the end of 1976,1 was invited to join the ARCO Strategic Planning Group, which took us to ARCO's Tos Angeles headquarters. There, I eventually became the senior planning consultant in charge of projecting oil prices based on studies of energy sources, supply, and demand from oil, gas, shale, coal, nuclear, and hydropower, both in the United States and overseas. The group made recommendations to ARCO's management for investing in oil, natural gas, and coal in the United States. This was a wonderful experience that taught me strategic thinking, integrating the thoughts of many experts and executives in their own fields, and translating the conclusions to reach specific, well-defined strategic recommendations and decisions. The experience also gave me a chance to deal with many company executives, leading politicians, and government employees in the field of energy. In 1979, the Islamic Revolution erupted in Iran, and ARCO lost its oil production and supply from Lavon Island (which is off Iran's coast). In 1978, during the peak of the oil crisis, ARCO management assigned me the responsibility of managing the effort to find more than 250,000 barrels of oil per day to supply the shortfall due to the loss of production from the Lavon oil fields. This gave me a chance to see the world. I went to Africa, Asia, and Latin America looking to sign oil supply deals with almost every country that produces oil. In 1982,1 received an attractive offer to be an executive vice president of an independent refining company in Houston, Texas. Later on, I started my first company as an entrepreneur trading in oil and petroleum products.

In Houston, I was invited to become a founding member of a new bank, Woodway National Bank (it was acquired by a larger bank later). In 1983, and during our bank board meetings, we were briefed on delinquencies and nonperforming loans that were given to some of the biggest entrepreneurs, companies, and executives in Houston. I also noticed a lot of tension in one of the briefings given by the then-mayor of Houston, Kathy Whitmeyer, and the city's financial manager. Business in Houston had slowed drastically due to the decline in oil prices. Houston was hit as the oil, economic, and real estate bubble burst. (I saw the scars of this crash every time I visited Houston until the early 2000s, 20 years later.)

I went home to discuss this alarming situation with my wife. We decided to sell our house in the expensive Memorial area of Houston. We wanted to sell it fast. We asked a well-educated real estate broker (a former high school mathematics and statistics teacher from Canada) to give us a good estimate for a price that would help us sell it as soon as possible. He invited over 100 real estate agents to our house and polled them. Based on his statistical analysis of the poll, he recommended $595,000, but he hesitated because the house next door was listed for sale at approximately $895,000. We told him to go ahead. We sold the house within weeks for $575,000 and moved to a nice apartment close by until our two daughters finished the school year, at which time we prepared to move back to our house in the city of Altadena near Los Angeles, California (which we hadn't been able to sell because interest rates had risen to nearly 19 percent). We considered ourselves very lucky because we were able to sell our house before the Houston real estate crash, and not being able to sell the California house meant we had a home waiting for us in Calif0ornia. (The next-door neighbor was not able to sell his house until he lowered the price from $895,000 to $300,000.)

Returning home one day in 1984, while still in Houston, I found a telegram from the IBK, the bank I had helped start 10 years before. In 1983, Kuwait was hit by a devastating stock market crash because of a nationally practiced pyramid scheme. I went to interview with the new chairman and received an offer to return to the IBK. I took my family back to California, fixed the house, and settled our children in school. My wife went back to work for CF Braun (Brown & Roots Engineering Company) designing fertilizer plants and oil refineries before she moved later on to work for Northrop, the defense contractor. In September 1984, I started working at the IBK. As the projects manager, my team responsibilities included:

■ Taking care of nonperforming assets and recommending a course of action to work out the loan portfolio.

■ Identifying new projects that were needed in the economy to help economic growth and to finance them.

■ Training a new generation of young Kuwaitis to take over as the new industrial bankers in Kuwait.

Because my daughters were in school, my family did not join me this time; they stayed in the United States. I lived in a half-suite at the Sheraton in Kuwait. During this time, between 1984 and 1986,1 had a chance to see how a bank loan portfolio can grow in a fictitious boom and how many took advantage of “easy” credit terms and loose credit standards. I experienced how corruption can change the fiber of a society and how money matters can cause deep feuds between leading families and create irreparable fractures in a society. I also was close to the raging Iran-Iraq war, and I saw daily convoys of hundreds of trucks carrying tanks, military supplies, wheat, and food supplies traveling to Iraq from a Kuwaiti port dedicated to support the Iraqi war efforts (Shua'iba Port). Before I left Kuwait to go back home in 1986. I told my Kuwaiti friends, “Those tanks you are sending to Iraq may come back to threaten your safety and security.” Indeed, in 1990, the late President Saddam Hussein invaded Kuwait, and the U.S. Marines came to the Kuwait Sheraton! The rest is history.

In 1986, I returned to California and found a job as a financial consultant with Shearson Lehman (later to merge with American Express and subsequently in many other mergers to become Smith Barney/Citigroup). As I began to work in the financial industry, a dream started forming in my head. My dream was to start a bank or a financial institution for our community.

During all these years, I had remained in close and continuous touch with the community by serving with my wife in the Islamic Center of each city we lived in. My wife and I helped start Sunday schools for the children; I delivered the Friday sermon (khutbah) and led the congregational prayers. I also performed and officiated at wedding ceremonies, presided over marriage conflict resolution and family matters, prepared the dead for burial, and taught in the Sunday program to the youths and adults. I was called upon to travel around the United States and Canada to help motivate local Muslim communities to donate generously for the building and financing of masajid (mosques) and full-time Islamic schools designed along the same models of Catholic and Jewish schools in the United States, Europe, and the rest of the world.

When we moved from Dallas, Texas, to Los Angeles, California, in 1977, I was elected to the board of directors of the Islamic Center of Southern California. I left the board when we moved to Houston in 1981. In Houston, my wife and I started activating, formalizing, structuring, and institutionalizing the Islamic Sunday school and helped in the organization and operation of the Islamic Center there. After moving back from Houston to Los Angeles, I was again elected to the board and was given the responsibility of chairman of the finance committee at the Islamic Center of Southern California (ICSC). There, I applied what I had been learning all these years. Our team restructured the Center's finances, started a program for automatic donations from members' checking accounts to ensure that the Center employees' salaries and overhead could be provided for on a regular basis, and developed operating policies for the Center. Most important of these policies was to rely only on donations from the American Muslim community. Our policy allowed the acceptance of donations from noncommunity sources and others from outside the United States, but not from governments. It was difficult in the beginning. However, it has been my experience that when you put people to the challenge and articulate your goals to them, you will capture their imagination to join you. Then what seems impossible can become possible. Doing this for all those years gave me the opportunity to understand the community, share its joys and dreams, and feel its pains. It also gave me a chance to meet the youth and children — the new breed of Americans who are Muslim. I saw the future in them, and I had no doubt that it was going to be a very bright and promising future.

During my many fundraising trips, and on my way back home, I started thinking about the future of our community. I asked myself: When were we going to stop “begging” and start building the financial muscles of our community? How could we develop an Islamic finance solution to help solve the problem of many Muslim “puritans,” who preferred living in small, crowded, and shabby apartments rather than commit the grave sin of participating in the prohibited riba by borrowing money with interest to finance the purchase of a home? How could we bring these families out of the apartments and into suburban America, where they could meet new neighbors, live a more comfortable life, and send their children to wonderful neighborhood schools, integrating them in America to live a full American life, but without interest (riba)? How could we create an RF financial institution that would be capable and qualified to gather the community's savings and be qualified to invest these savings prudently back in the community, with qualified, dedicated, and honorable community members who have experience, good ideas, and good projects? If we could realize this dream, I knew we could empower the community, help its growth, and create wealth and economic prosperity and job opportunities for many. The answer to this question was to start an RF bank or an RF finance company. The biggest problem was the challenge of operating that institution without riba.

In 1987, I met a visionary who was busy developing RF finance companies and banks around the world. He was in Los Angeles on vacation, and he heard me deliver a Friday prayers' sermon (jum'aa khutbah) at the masjid. We became close friends, and I shared with him my dream of starting RF banking services for the community in America. He was another gift from God, because he encouraged me to proceed. He was also instrumental in introducing me to his contacts: significant lawyers, bankers, and religious scholars who specialized in the field of RF finance. He also wanted to start an RF stock portfolio under my management. He further asked our team to develop parameters that would qualify a company stock on world stock markets to meet RF finance investment criteria. In cooperation with a few dedicated and highly qualified Islamic bankers and scholars, we developed these parameters, started the portfolio, and diversified it among different portfolio managers around the world. We reviewed the different screens used to identify RF Shari'aa-compliant stocks and the performance of this $250 million portfolio on a quarterly basis. To my knowledge, that was the first time in history an Islamic RF stock portfolio was developed and brought to life. It would be years before the Dow Jones Islamic Index was developed, made public, and marketed throughout the world.

We started American Finance House LARIBA in 1987. In the beginning, we were not sure if our efforts would be accepted or if they would be misunderstood. We used the name American Finance House: American to acknowledge that our company is American, and Finance House to imply its nature as an Islamic treasury; in the early history of Islam, the Treasury was called the House of Assets (Bayt ul Maal). We also added the word LARIBA. In the beginning, we explained to those who did not know about RF financing that LARIBA stood for Los Angeles Reliable Investment Bankers Associates. Those who knew about RF financing also understood that in the language of the Qur'aan (Arabic), la means no and riba means the act of renting money at a price called interest rate (the Old Testament uses the sister word ribit for the same concept). We made it very clear that we were not out to change, dismantle, or demolish the conventional banking and finance system in the United States. We simply offered a humble RF alternative that would serve those “puritan” Muslim and other Americans who wanted to live according to their religious beliefs while obeying the laws of the United States. We articulated this at the outset when we made it clear that changing U.S. laws was not one of our objectives.

As we developed LARIBA, we wanted to make sure that it would be a grassroots organization for our community. That meant that we should rely on our own resources, not go hat-in-hand soliciting capital from the oil-rich communities in the Gulf. We believed that if we were really serious, we could entice many of our community members, starting with each one of us putting our own money where our mouths were. We also wanted to train members from our community on RF Islamic banking and finance. We made sure that we did not use the American Muslim as a marketing front for the same conventional finance operations to take advantage of a market niche. The strict guidelines were severe and challenging. They meant that we would have a steep uphill battle to develop and achieve what we wanted. However, we believed that the turtle approach would be much more effective than the jumping frog approach. A turtle goes slowly to its target; and if a hurdle stands in its way and prevents it from progressing, it takes a sidestep and proceeds. Compare this to the frog, which jumps up and down and back and forth and often ends up where it started. Yes, it took us a long time, but that time helped us develop a system, learn from our mistakes, sharpen our models, train a new generation of Americans who believe in our LARIBA concepts that abide by RF disciplines, and prove ourselves to the community at large.

We started LARIBA in 1987 (in the month of Ramadan) out of a box. We slowly grew it out of the box and moved it to the apartment above the garage in my house. Then we moved to Pasadena, California, where we expanded three times, ending with almost four times the initial square footage and now to its current location in Whittier, California. We started with one part-time employee and grew to 22 employees. One thing that helped us grow was the Internet. In 1997, LARIBA was contacted by a young man who was doing his master's degree at USC (University of Southern California) in computers and Web development. He needed a $3,000 loan to buy a powerful computer to help him in his studies, but no one would finance him. We financed him at LARIBA. We asked him to develop the first LARIBA portal,, which later became LARIBA .com. The LARIBA site became very popular. From the time we started keeping track of the number of unique visitors in the year 2000 through July 2009, the LARIBA site has attracted more than 1 million unique visitors. It became the most information-rich site available on the subject of RF Islamic banking.

In 1994, I authored and self-published my first book: LARIBA BankA Foundation for a United and Prosperous Community. It was a simple book that summarized what I had learned and read over the years about Islamic banking, and in it, I also articulated our community dreams. The demand for the book was great. We printed it twice and distributed more than 6,500 copies in the United States. A publisher in Malaysia acquired the printing rights and continues to distribute it on a large scale in Malaysia and Indonesia. LARIBA became an important household name in the United States and Asia, as well as the Middle East. The brand name LARIBA is now considered to be like “Coca-Cola” — recognized throughout the world as the brand of RF (Islamic finance). We were invited to speak at universities such as Harvard University, the University of Illinois, the University of California at Los Angeles (UCLA), Claremont Graduate College, and many others, in addition to Islamic centers, churches, and synagogues all over the United States and Canada. In addition, we were invited to present at international conferences in Malaysia, Bahrain, Brunei, Saudi Arabia, Kuwait, Singapore, Canada, England, Turkey, South Africa, and Egypt. The media began taking notice. ABC Nightly News (with Peter Jennings) had a segment on LARIBA, as did the Voice of America, Malaysian television, National Public Radio (NPR), and American Public Media's Marketplace. The Los Angeles Times had a front-page article on LARIBA, with a full-page inside report. Since that time, we have been reported about in USA Today, the Dallas Morning News, the Wall Street Journal, the Washington Post, the Houston Chronicle, the Chicago Tribune, and the Detroit Free Press, to mention a few.

One day, we received a phone call from the U.S. State Department to thank us at LARIBA. They explained that when they had published an article about LARIBA in their newsletter to the Middle East, many media outlets in the Middle East had picked up the story and republished it. The caller remarked that this was one of the few times they had been able to forward a positive story from the United States that appealed to the press in the Middle East.

In our effort to popularize the concepts we used, we started a new tradition. The tradition was to have an annual recognition award for significant distinguished contributors to the field of RF banking in the world. We awarded every “who's who” leader in the field, and we tied the award dinner attended by almost 500 members of the community and leaders of southern California to an annual seminar on Islamic banking. This effort ran for 12 years. The event was designed to be graceful, but full of subliminal notions that underlined our American affiliation and our respect for the U.S. political system and its laws. For example, we invited color guards to start our events. We were the first Islamic organization in the history of American Muslims to start its events not only with an invocation and recitation from the Holy Qur'aan but also with the national anthem, sung by a professional singer and later by a wonderful young lady, an American Muslim from the community. We invited our congressmen, state representatives, mayors, and many other public figures to the dinner. The awards that were handed out were not only awards from LARIBA but also included certificates of commendation from the Congress of the United States, the California State Assembly, the Los Angeles Board of Supervisors, and the Mayor of Pasadena, California (a city 20 miles northeast of Los Angeles, where our LARIBA offices were first located).

We also did something very bold in the year 2000. After the currency crisis of Southeast Asia, Malaysia, under the leadership of Dr. Mahathir Muhammad, was the only country in the region that weathered the storm and was able to contain the problem without sacrificing its foreign currency reserves or resorting to heavy borrowing from the International Monetary Fund (IMF). The board of LARIBA decided to create a new award called the Lifetime Achievement Award, and we gave it to the then-Prime Minister of Malaysia, Dr. Mahathir Muhammad. Dr. Mahathir came to Chicago to receive his award. We at LARIBA also did something unique for the ceremony. Instead of holding the function at a local prestigious, brand-name hotel, we held it in a Chicago suburb, in the auditorium of a prominent and well-appointed Islamic center built by American Muslims who emigrated from Bosnia. This move gave LARIBA wide coverage in the community and in the world press, as well as good political and operating credibility.

LARIBA had very humble means, and it lacked enough capital. We used to finance a home once every two to three months (the terms of financing were onerous: 40 percent down and a seven-year term) and a car every month, because we had a tough time convincing our friends to invest in the company. The U.S. regulations regarding solicitation of funds are strict and in general do not allow solicitation unless an offering is registered with the government. The process of registering for a public offering with the U.S. Securities and Exchange Commission (SEC) is lengthy and very expensive. However, we persevered, and our patience paid off. The community learned more about us, and the volume of calls started to increase. However, we could not meet all that growing demand.

In 2000, we received an e-mail from a banker who used to work for Freddie Mac (an American government-sponsored entity devoted to investing in long-term mortgages to enhance home ownership in America[1]) to obtain information about LARIBA. We explained to him what we do. In response, he introduced us to an executive at Freddie Mac, Saber Salam, who was interested in growing its mortgage finance activities among minorities in America. We talked, and he loved what we were doing. A delegation from Freddie Mac came to evaluate the company and its operations. We explained to them that for every home we finance, we and the customer each have to come up with three rent estimates for a similar home in the same neighborhood to evaluate the rate of return on investing in the house as if it were financing a commercial venture by using the market-measured rental rate to ascertain the economic prudence of the investment. We explained that we do this because our faith prohibits us from renting money at a price called an interest rate, but allows us to rent a tangible and rentable asset like a car, a home, or a business. If the investment (not the lending) makes economic sense, we finance the house mortgage; if not, we do not finance. The analyst in the team was apprehensive; he asked if they could review some of the financing files. They were all impressed when they audited the files.

Freddie Mac gave us approval in less than six weeks (they put out a press release about it on March 26, 2001). This was a record for approval time by Freddie Mac, which usually took an average of six months under normal circumstances. We then were confronted with the issue of the format of the operating relationship and how to do business with them without charging or paying interest. We at LARIBA agreed with Freddie Mac that we would look at them as an investor in each deal and that we would not borrow money from them. We felt that it would be hypocritical to borrow money from Freddie with interest and turn around and claim that we were financing mortgages riba free! This first-time-ever event in the history of the United States and the American Muslim community helped make LARIBA an important factor in mortgage financing in general and in Islamic RF financing in particular.

In 2002, we were contacted by the larger Fannie Mae,[2] and they also approved us. LARIBA, a year later, became the only RF finance company in the history of the United States that issued RF mortgage-backed securities (RF MBS sukukriba-free asset-based bonds) with Fannie Mae. We are all grateful to God and to the many dedicated men and women, fellow associates at LARIBA, for their dedication and quality work, which made LARIBA among the top 1 percent quality producers for Freddie and Fannie.

It had always been difficult to raise capital for LARIBA. Many of the community members indicated that they would be willing to support us if we were a Federal Deposit Insurance Corporation (FDIC)-insured bank. We, the shareholders of LARIBA, became very interested in buying a bank. We wanted to find a small bank that we could afford and that we could manage and grow slowly. After investing seven years in the search for a bank, we found the Bank of Whittier, National Association (NA). The project of acquiring and working on the change of control of the Bank of Whittier plunged me into another valuable and educational experience. The process was enhanced by the support and encouragement of an expert attorney in the field, Gary Steven Findley, Esq. The Bank of Whittier, being chartered as a national bank, is regulated and supervised by the U.S. Department of Treasury. We learned many lessons in dealing with the U.S. government for the first time. We learned why the United States is what it is, and we all learned why the American banking system has no equal in the world.

We are aware of the unfortunate financial meltdown of 2008. It is known that many politicians claimed that it resulted from the lack of sufficient regulations. That may be partially true in particular and specific situations, but not in general. It is historically known that one of the most important results of the Great Depression was the ratification of the Glass-Steagall Act, which prohibited commercial banks and investment banks from combining their businesses. This act was repealed by the Congress during the Clinton administration. At Smith Barney I was one of those who witnessed the attempts made to combine the two cultures without much success. It is also important to stress here that all the regulations that man can exert in the system will not be able to stop fraud, dishonesty, greed, and the irresponsible behavior of people who are supposed to be the trusted custodians of our assets and savings. Ethics and morality are not instilled in people by regulations but by parents, the school system, the media, and the society at large, starting at an early age.

In 1998, we at LARIBA received approval for change of control of the Bank of Whittier, NA, and were elated to own a bank affiliate. We initially selected community bank managers to run the bank who had a strong background in traditional banking but little familiarity with the community served by the bank and no knowledge of the RF business model.

In July 2003,1 attained vesting with Smith Barney, talked to my wife about taking early retirement, and went to reorganize the Bank of Whittier. Today, the Bank of Whittier operates as an RF bank, but in a seamless way. We chose a slogan that described the RF discipline we abide by: We Do Not Rent Money — We Invest in Our Customers. We also told people what RF banking and finance is all about. It is a faith-based and socially responsible community effort that is not involved in renting money. We shared with our customers our RF approach to finance, to banking, and to client service, and they experienced our services. Their consistent feedback was: “We have not heard bankers talk like that before!” We shared with our clients what I sincerely believe is the first FARIBA banker in America: George Bailey, the banker played by Jimmy Stewart in the movie It's a Wonderful Life.”

The heinous crime of September 11, 2001, shocked us all. I was in the kitchen preparing breakfast and saw it live on TV. I went to the office and received a call from the mayor of Pasadena, California. He asked me what to do. I told him that I have disciplined myself such that when I am in a shocking situation like this, I resort to praying. He and I led an effort to organize, for the first time in Pasadena, the first prayer response to the catastrophe. We invited the leaders of 35 religions and communities in southern California for a prayer at the steps of the Pasadena City Hall. It was heavily attended, and it helped us develop wonderful friendships with many religious leaders of all faiths in southern California.

Reflecting on my personal experience as a naturalized U.S. citizen who has lived in America since 1968,1 concluded that I need to pay respects to the rest of America by understanding the majority faith of America, Christianity. I, along with many other American Muslims, was also deeply hurt by the vehement attacks and unfortunate remarks some significant church leaders made about Islam, the God of Islam, and the Prophet of Islam. In response, I decided to work on building bridges of friendship, mutual understanding, and goodwill with the Christian seminary closest to my home — Fuller Theological Seminary in Pasadena. There, we made good friends and participated in a pioneering conflict resolution effort to soothe relations between our two communities. The most important outcome of that effort was a historic announcement that concluded that the Christian God and the Muslim God (Allah) are indeed the same. This announcement was published in the Los Angeles Times on December 3, 2006. We all also discovered in this process of pondering and soul-searching that we at LARIBA had a way to promote better understanding and lasting bridges between the communities of faith: RF faith-based and socially responsible financing.

LARIBA devoted its Annual Awards and Symposium series of 2002 to the subject. We asked professors from the University of Judaism in Los Angeles and a prominent rabbi in North Hollywood (who has a keen interest in the field of ribit/riba-free financing) to present the Jewish view. For two Christian points of view, we invited professors in the fields of lending with interest charging at Loyola Marymount University to present the Roman Catholic view, and professors from Fuller Seminary to present the Evangelical view. It was a wonderful and enriching experience that made us understand more fully and clearly the problem of charging for the use (rent) of money. We also learned the source of the word usury, which is now defined as excessive interest — but nobody could answer the question: “Excessive in reference to what?” In fact, usury was defined long ago by the early disciplines of the Catholic Church (before rules were relaxed in the fifteenth century) as the price one pays for renting the right to use money. It was wonderful to hear the metaphor of trying to rent the right of use of an apple, which is impossible because an apple can be owned only when its ownership right is transferred. That is exactly the case with money, which is nothing but a measuring tool. It is not like an automobile, which one can own but can also assign the right of its usage by renting it. Money is a thing — it cannot be rented. We also learned that in the early days, if a person of the Jewish faith charged ribit (interest), he/she could not stand as a witness in a Jewish court; similarly, a Roman Catholic who dealt in (usury) interest was denied the right to a Catholic burial.

Faith-based ribit/riba-free (Islamic) banking and finance — RF banking and finance — is much simpler and must not be more expensive than it is perceived by the public. It is a concept that makes perfect sense. RF banking is based on the belief that credit is a basic human right. It is socially responsible, environmentally compliant, and ethical. RF bankers are trained to make sure that the financing facility makes prudent economic sense to the family because the decision to finance (invest) is based on the prevailing actual market prices. Its bankers are trained not to help a community member dig a deeper hole of debt, but rather to help that person get out of debt as soon as possible. RF banking is a system that commits itself to being involved in real economic activities, not simply “renting” money in order to make money on money. Its financing activities involve asset-based or service-based financing — that is, a commodity, a tangible asset, and/or a service must change hands. The primary passion of true RF banking is community service and development. It is interesting to note that this is not much different from the foundation of the well-known U.S. bank regulation titled the Community Reinvestment Act. Our vision is to have an RF banking and finance unit started next to every place of social assembly: trade organizations, clubs, and places of worship (e.g., temples, synagogues, churches, and masajid).

Based on our experience since 1987, the outcome has been and will continue to be superior service and a solid credit (loan) portfolio. This is so because the evaluation of the economic viability of each credit facility is based on comparing each asset and/or service with the market to ensure that it is a prudent investment. Because of the low risk and solid products offered by the RF system, the overhead expenses are lower. Because the system is based on the knowledge of each member of a smaller community, the “cardinal” rule of banking (i.e., know your customer) is practiced to the fullest. The net result is much higher returns than conventional banks, mainly due to the low levels of nonperforming loans and the deep spirit and culture of voluntarism and service instilled in the RF banker.

This preface has covered a lot of history, experiences, and topics. The book will attempt to introduce the spirit of RF banking as I understand it, as we practice it at LARIBA, and as we have lived it since 1987.1 have invested at least 27 years of my life reading, researching, developing finance models, authoring papers, giving lectures all over the world, writing books (including this one), arbitrating between RF (Islamic) banks and businesses holding credits with these RF banks worldwide, and training RF bankers in Malaysia, the United States, Canada, and Turkey. I have the honor of sharing all these experiences with you, the reader of this book.

I have a deep interest in the spirit of Judeo-Christian-Islamic law (Shari'aa, called the law in this book) and the reason this law was put into effect, as revealed to mankind by God of all prophets, including Prophets Noah, Abraham, Ishmael, Isaac, Jacob, David, Solomon, and all subsequent prophets (may the peace and prayers of God be showered on all of them), and by the founders of the three monotheistic faiths, Moses (pp), Jesus (pp), and Muhammad (pp). I have tried the best I can to be educated in my own faith, Islam, as well as Christianity and Judaism. I consider myself as a servant of God and hence a servant of the people who live the life of loving God — God of all people of all backgrounds and walks of life — and this must be translated in disseminating love to all people. It is not enough to lecture people and try to capture their imagination, touch their hearts, and influence their minds. What is important is to touch their pocket and to make a difference in the quality of life they and their families live.

I want to conclude by quoting a hadeeth (pronouncement) of Prophet Muhammad (pp), which has been my motto over the years: “The best of people are those who benefit others the most.”

  • [1] Freddie Mac is a government-sponsored corporation that provides a secondary market for home mortgages and hence helps provide liquidity to mortgage companies.
  • [2] Fannie Mae is a sister company of Freddie Mac, but much larger and older. It provides liquidity for home mortgages in the secondary market.
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