From visits to interest-free banks and financial institutions and subsequent meetings with those involved gives one the impression that interest-free banking is gaining market share in the United States.

Though small, it is a growing business in some US states where a good number of Muslim immigrants are settled. But Islamic banking is not the prerogative of the Muslims alone.

Not only Islam but Jewish and Christian faiths too, prohibit usury. After some recent incidents like the 9/11, some Muslim immigrants feel shy in using the word Islamic banking. Instead, the terms interest-free, zero-interest banking and the banking of faiths are used

In a presentation by Maguid Abdelaaty, President La Riba Bank, scholars of different faiths have made it clear that in addition to the Quranic injunctions, the Jewish scriptures, as well prohibit Riba on loans. In Hebrew, IQSA refers to fee. Similar is the case with the Christian Holy Commandments.

The scholars who made their presentations include Dr Yahya Abdul Rahman, also an Islamic Banker, who has established two banks i.e., the Bank of Whittier and La Riba Bank, Dr Mahmoud Al-Gamal, Professor of Islamic Economics at the Rice University Houston, a Christian scholar at the Chicago University, Professor William Schweiker.

The Chief Executive of Devon Bank in Chicago is a Jew and the CEO of Guidance – mainly dealing housing mortgages and consumer loans has roots in Christianity. Both these organisations are working under the Islamic Shahria Advisory Boards.

The names and signatures of Justice Taqi Usmani and his son Dr Imran Usmani were found on the documents of Shariah Boards of some banks here.

With an active cooperation of Jews, Christians and Muslims and the interest of Federal Reserve, the Comptroller of Currency Office (OCC) and the on-going regulatory adjustments, is poised to make interest-free financial system in the US a success. The most important financing products are home and automobile financing.

Although, banks are also focussing on Murabaha Ijara and off-shore Sukooks, some of these institutions are chartering on innovative initiatives, so far as the development of products and services is concerned.

In the US, Islamic financing is generally a community-based system, while many religious-minded officials of these banks and institutions were seen offering their prayers in different mosques on different days – and at times, by rotation explaining their products and services to the devotees and real estate agents.

This direct canvassing and personal marketing reduces advertising costs of these banks and instils confidence in the targeted audience. If the system is run with transparency, good governance and an internationally-accepted regulatory and Shariah framework, there is no reason why interest-free banking in the US should not flourish.

Hardly 15 years back, banking in the US was conventional in character. None of them formally offered any interest-free financial products although the concept of Venture Capital is quite near to the Islamic financial system. With the growth of Muslim immigrants, this system is gaining momentum.

According to the Chicago Fed Letter, the current number of estimated mosques is over 1,500 and as per the religious survey over 65 per cent Muslims are members of different mosques. Currently, assets in the US Islamic investment are estimated to be around $145 million.

Dr Yahya Rahman, the pioneer of interest-free banking and founder of two banks while commenting upon the products and services offered to clients by his banks referred to financing of automobiles, homes, equipment, trade, house construction, businesses including halal fried chicken. It is a full service commercial bank and offers safe-keeping and non-interest debit card services.

Elaborating negative aspects, he went on to say that there was high turn-over of young employees of the bank. Younger people are more westernised. There is a need to empower them and the community as well. It was one of his goals to develop highly motivated teams of Islamic bankers.

Some major constraints faced by these banks and institutions are: lack of understanding of the system by the Federal Reserve, Comptroller of Currency Office and taxation authorities; tailoring Shariah-compliant products with the State and Federal regulatory requirements; maximum conformity of products with Shariah; lack of consensus among Shariah Boards on various issues; institutional and other financial risks; absence of specialised accounting standards; absence of trained professionals; limitation of interest-free financial market viz-a-viz the conventional market at the national level.

Other constraints include, limited sale of Islamic products in the secondary market;imbalance between the cost/pricing of the interest-free and conventional products; acceptance of legal title to property like that in case of conventional banks; fore-closure, recovery and penalty issues; limited focus on research and development of innovative products, friendly to the US market.

Some heads of the interest-free institutions say that the OCC and the Federal Reserve, in the recent past showed keen interest in understanding various complexities of this system with a positive approach.

The Office of the Comptroller of Currency assesses the risk of these institutions in accordance with certain functional equivalents. According to the Chicago Fed Newsletter, “Federal and state regulatory agencies have stated their intention to hold regional discussions with financial institutions aimed at developing regulatory standards that take into account the institutional and systematic risks of Islamic financial products”.

Establishment of the Islamic Financial Services Board in 2002 with sponsorship from the International Monetary Fund was yet another positive development to streamline functioning of this system.

Now a few words about the role of Dow Jones Islamic Indexes and the Harvard Islamic Forum in making this programme a success.

By becoming members of the Dow Jones Islamic Index as license-holders, some of the above and other upcoming financial institutions have an access to other Shariah-approved companies which help them to have mutual cooperation, placement of funds and buying/selling securities on Islamic principles.

Established in June 2000, the Fund invests in equities of Shariah-compliant corporations/companies. It is offered by the Allied Asset Management Advisors. The DJGI - a global index, tracks global securities from 34 countries covering 10 economic sectors with an Islamic perspective. The stocks are reported to be well traded and are easily accessible to investors. The family of this Index consists of the DJ Islamic Market US Index,

The DJ Islamic Technology Index, the DJ Islamic Extra Liquid Market Index, the DJ Islamic Market Canadian Index, the DJ Islamic Market UK Index, the DJ Islamic Market Europe Index and the DJ Islamic Market Asia/Pacific Index. Corporations/people can invest in Sharia-compliant investment.

The Sharia Supervisory Board consists of eminent Ulemas like Abdul Sattar Abu Ghuddah (Syria, Justice Muhammad Taqi Usmani (Pakistan), Nizam Yakubi (Bahrain), Dr Mohammad A. Elgari (Saudi Arabia), Yusuf Talal De Lorenzo (US) and Dr Daud Baker (Malaysia).

Established in 1995, the Islamic Banking Forum is a part of the Islamic Legal Studies Programme at Harvard. Among other useful works, the ILSP has compiled comprehensive bibliographies in this field to benefit researchers and practical interest-free bankers. The data-base contains a wealth of information on the subject.