"The United States’ Muslim population is roughly equal to that of the United Kingdom, a country that houses $19 billion in Islamic financial institution assets, more than 20 banks, and six that provide Sharia-compliant products exclusively. Yet our market for Islamic financial products is much smaller. There's no single list of participating firms or aggregate estimate of assets, but one can find roughly a dozen firms that routinely offer Islamic banking and investment products to businesses and consumers, though several don’t even market such products on their websites. ...
Islamic finance came to the United States in the 1980s when two institutions opened on the West Coast. ... The institutions operational today provide services in several states, most prevalently where the Muslim population is concentrated. University Islamic Financial (a subsidiary of University Bank) based in Ann Arbor, Mich., serving the large Muslim population of metropolitan Detroit and surrounding states, is the first and only exclusively Sharia-compliant bank in the United States — it offers no other products. Devon Bank in Chicago is the only other bank regularly offering Islamic financing products. Reston, Va.- based Guidance Residential is the largest nonbank financial institution offering Islamic finance services, having provided more than $3 billion — which it claims is nearly 80 percent of the total — in musharaka mortgage financing in 22 states since its doors opened in 2002. California-based LARIBA is another large Islamic mortgage lender, and it also provides business financing.
To what extent are Islamic banks different from conventioanl banks? Haltom cites some of the evidence:
"To critics, Islamic finance is a distinction without a difference. According to research by Feisal Khan, an economics professor at Hobart and William Smith Colleges in upstate New York, most Islamic finance transactions are economically indistinguishable from traditional, debt- and interest-based finance. Where there is principal and a payment plan, there is an implied interest rate, Khan argued in a 2010 article. He is not the first economist to make such a claim. Many Islamic scholars argue that murabaha contracts don't share risk and thus are not Sharia-compliant — and experts estimate that such contracts constitute up to 80 percent of the global Islamic finance volume. Other economists have noted that the terms of Islamic financial contracts often move with market interest rates. In the United States, Islamic financial products are frequently marketed with information about implied interest rates to allow customers to compare prices or simply to comply with American regulation. A study of Malaysia, the world's largest Islamic finance market, found that Islamic deposit rates fluctuate in step with market interest rates."
U.S. financial authorities seem to agree.
Banks here [in the U.S.] are normally prohibited from taking on partnership or equity stakes in real estate, a provision meant to limit speculation. But in Islamic finance, the bank assumes formal ownership. Regulators in the United States have held, however, that Islamic finance is compatible with the prohibition on real estate investments in some cases. In 1997, the United Bank of Kuwait (UBK), which then had a branch in New York, requested interpretive letters from its regulator, the Office of the Comptroller of the Currency (OCC), on ijara and murabaha mortgage products. The OCC approved them on the very grounds that they were economically equivalent to traditional products.
In the OCC's view, because the purchase and sale transactions are executed simultaneously, the bank's ownership is merely for "a moment in time," and therefore the Islamic contracts avoid the type of risk that real estate restrictions were intended to limit. (The joint ownership that defines musharaka contracts, on the other hand, is not currently approved for use by banks and is used in the United States only by nonbank mortgage lenders.) From an accounting standpoint, the transaction appears as a loan (an asset) on the bank's balance sheet. The borrower is responsible for maintaining the property and paying all expenses, and in the event of default, the bank may sell it to recover what is owed, as in a mortgage. ...
Possibly because the products are unfamiliar to many investors, there is a smaller secondary market for Islamic financial products, so it has been harder for Islamic mortgage lenders to remain liquid, hindering the market's growth. In the United States, housing agencies Freddie Mac and Fannie Mae started buying Islamic mortgage products in 2001 and 2003, respectively, to provide liquidity, and they are now the primary investors in Islamic mortgages. By 2007, one firm, Guidance Residential, was relying on more than $1 billion in financing from Freddie Mac. ...Of course, there are a wide range of Islamic banks around the world, and they have a range of practices, so generalizations about the extent to which they are or are not similar to conventional banks are likely to be hazardous. But as Islamic banking grows, it will be interesting to watch whether it seems to be seeking ways to mimic conventional banking, albeit with different labels, or whether it is leading to greater use of financial contracts with distinctive risk-sharing properties. As one exmaple, there now appears to be an emerging market for Islamic bonds, called sukuk. Rather than being based on an explicit interest rate, they are tied to payment streams from tangible assets. Haltom explains:
In the 1990s, the first international accounting standards were developed for Islamic finance, and the first market emerged for Islamic bonds. Those bonds, called sukuk, tie investments to tangible assets that issue payment streams based on their revenues, much like securitized equity financing. ...
Another factor is that non-Muslim governments are moving toward issuing sukuk to draw the investment of oil-rich Muslim countries. In June, the United Kingdom issued more than $330 million in sukuk — compared with more than $100 billion in global sukuk offerings in 2013 — becoming the first country outside the Islamic world to do so. Prime Minister David Cameron said he wanted to make London "one of the great capitals of Islamic finance anywhere in the world." Luxembourg, Hong Kong, and South Africa have announced plans for their own offerings. Sukuk may also provide liquid assets to help domestic Islamic banks manage their balance sheets.
