Pretty much anyone reading this article right now is going to hell, according to Dante.
In “The Inferno,” Dante Alighieri assigned all interest-charging lenders to the 7th circle of hell, on the lowest ledge – even lower than murderers. That includes bankers, mortgage lenders, any lender that charges interest; it likely includes anyone who even has a savings account, since we all get interest back on investments.
Obviously, beliefs have changed for the majority of Christians and Jews, who now embrace the concept.
Not so for Muslims. As with most religious questions, different factions have different interpretations. But generally speaking, interest is seen as a kind of cheating, and insurance is akin to trying to protect oneself against the will of God.
Muslims in the U.S. take out mortgages and buy insurance, but only when they’re forced by law or otherwise feel they have no choice. Often, Muslim assets go uninsured and uninvested.
New Niche?
That presents a potentially huge, but mostly untapped opportunity for whoever can build financial businesses that follow Muslim religious law, according to researchers.
“Someone’s eventually going to recognize it and step up to the plate,” said David Bradford, executive director with insurance research firm Advisen. “There’s really this – at this point – completely unfulfilled demand.”
Specifically Islam-friendly insurance and financial companies are expanding rapidly in places like Britain and Bahrain, but the U.S. doesn’t have any such homegrown insurance businesses – and only a few investment and banking companies – to serve the growing population of Muslims living in the U.S.
There are, however, certain barriers to entry.
“Regulators don’t understand it,” said Monem Salam, director of Islamic investing for Amana Mutual Fund Trust, while researcher David Bradford added that the U.S. Muslim population isn’t big enough to spur companies to deal with U.S. hurdles.
Another key issue: Many Muslims scoff at the concept of Islam-friendly insurance and financial services. Any company that purports to be in compliance with Shariah law is merely regular insurance “with Islamic bunting” as one Connecticut Muslim put it.
Imam Basyouny of the Islamic Society of Boston agreed: Religious law encourages the Muslim community to give freely to support its members, but traditional insurance requires putting down money for a contract whose results are unknowable – that act of God’s will that may or may not happen.
It’s a form of gambling, just like interest is a form of cheating, he said.
Insurance companies also make investments that might go against Shariah law, also, said Saleh Ibrahim, secretary of the Islamic Center of the University of Connecticut. Policyholders simply don’t know what’s being done with their money.
Still, Muslims in the U.S. buy insurance because they’re required to, he said.
But Bradford insists some insurance can indeed be in compliance with religious law, but that it will take some educational outreach to get that message out.
A Different Approach
Advisen completed a study this year arguing for Muslim-compliant insurance, citing a council called the Islamic Figh Academy ruling in 1985 that declared insurance acceptable as long as it operated through “mutual self-help and cooperation.”
In such a company, the policyholders put in premiums, considered “donations” to a fund, which operates under principles similar to conventional mutual insurance companies. The pool is managed by an operator, who invests the money in Muslim-accepted ventures. Any income or underwriting deficits or surpluses are distributed in pre-agreed proportions back out to the policyholders. The company’s manager is compensated either on the basis of profit sharing or a fee model.
A number of other caveats and details are put in place to keep the whole thing above-board, according to Advisen’s report.
Banking companies have gotten a head start on catering to Muslims, Bradford said: About 100 companies around the world offer Islamic-friendly operations affiliated with conventional insurers. Major U.S. banks like Citigroup offer products including mortgages and bank accounts, as well as multibillion-dollar Islamic bonds.
But companies that specifically provide this type of insurance are rarer. AIG set up a Bahrain-based company to sell life and non-life insurance products, but U.S.-based companies with Muslim-friendly products are all but nonexistent.
The regulatory environment isn’t exactly open to this kind of thing, Bradford said. Regulators are concerned that religious principles would trump financial soundness in these companies. Strict rules against many different types of investments, and the inability to charge interest, also don’t sit well.
Still, a few Islamic-centered financial ventures have gone well, said Salam of the Washington-based Amana fund. Including Amansa, three organizations in the U.S. offer Islam-approved mutual funds. That means no investments in any company involving forbidden things like alcohol or gambling, Salam said, or even in banks or insurance companies.
That’s proven to be a boon in times like these, he said, since it steered their money away from the very investments that have imploded this year. Indeed, “traditional” investors have flocked to these funds, he said, simply because Islam-friendly investments are also just plain sensible.
In 2003, assets under management were at $40 million – now, that number is $1.1 billion, Salam said.
