An Islamic law enacted centuries ago was an obstacle for modern Minneapolis businesses until Minneapolis partnered with an African business resource group to allow Muslim business owners a way to both comply with their beliefs and invest in their businesses.
Since April 2007, the city of Minneapolis, in partnership with the African Development Center, has given out 38 loans in a way that is compliant to Islamic law by using a fixed rate in place of a variable interest rate.
Through the system, called the Alternative Finance Program, businesses pay a set rate of return, which corresponds with Islamic practices. The program is a slightly altered version of the common “Two-Percent” loans also offered by the city’s Department of Community Planning and Economic Development.
“It really amounts to the same thing,” Bob Lind, CPED director of business finance, said. “But it’s … just a different way of looking at it.”
Recipients of the loan operate businesses that lie mainly in the Cedar-Riverside neighborhood and along Lake Street, “typical strongholds for the Somali community,” Lind said.
Five of the loans went to businesses that are part of a Somali marketplace in the Cedar-Riverside area.
Said Karie, who works at Hijaz Clothing in the marketplace, explained that “everything that has [an] interest rate is actually a sin” for Muslims.
“It’s been that way for years and years,” Karie said.
The rule extends beyond just loans, as Muslims who follow the religion strictly will go as far as returning interest gained on savings to the bank or a charity, said Abdirahman Omar, general manager of Mustaqbal Computer Center.
“Personally, I wouldn’t take it [interest] even if I needed it,” Omar said.
The rule also preserves reliability in rates, Karie said. Instead of using an interest rate that will vary according to the market, the fixed rate used for the Alternative Finance loans is consistent, he said.
Many loans have gone to businesses that reflect the Muslim culture, such as Middle-Eastern restaurants and Halal meat stores, where food, like the loans, abides by Islamic law.
However, loans have also gone to other various retailers, such as computer, clothing and book stores.
The Mustaqbal Computer Center used a $75,000 loan to invest in wholesale computers, Omar said.
The loan program is a response to the wave of Middle Eastern and East African immigrants in recent years, Lind said.
“We’re just trying to work with those new immigrant populations to try to provide assistance and financing just like we would for anybody with the last name ‘Smith’ or ‘Johnson,’ ” he said.
Partnering with the Minneapolis-based African Development Center, CPED has distributed almost $1.5 million to the businesses, with loans ranging from $10,000 to $150,000. Most fall between $10,000 and $20,000, Lind said.
He added that loan recipients have been good clients of the city; "[they] tend to borrow as short a term as possible [and] pay it back as quick as possible,” Lind said.
Before the program, businesses were unable to get loans because of these religious beliefs, and they would turn to raising money internally, Lind said.
The program is a pathway for business owners to “achieve the American dream of creating wealth,” Lind said.
He added that Minneapolis is the first city, to his knowledge, to adopt a Shariah-friendly loan program. He sees the city’s version as becoming a model for others in the future.