ARLINGTON, Va. – Two groups of Muslims, one in New York and one in Florida, are working toward founding credit unions that would like to organize along the principals of Islamic law, according to a consultant that has been helping them in their efforts. If they succeed, the new credit unions will be the first "Islamic credit unions" in the nation and might provide a model for credit union efforts in the Muslim world, the consultant said. Currently, three credit unions in the U.S. serve fields of membership with a high proportion of people who identify themselves as Muslim. The $28 million Pioneer Muslim Credit Union serves predominantly Muslims based in Houston, Texas, as does the $21 million Nizari Federal Credit Union. The $12 million Dearborn Village Community Credit Union, in Dearborn, Michigan serves a community whose population has a high proportion of Muslims. None of the institutions, even though they serve fields of membership with a high proportion or Muslims, call themselves Islamic credit unions, and all three were unavailable or declined to grant interviews about their operations. However, the largest, Pioneer, has been doing quite well. According to the NCUA, the credit union had a return on average assets of 3.12, as compared to .75 for its peer group and despite having a delinquency rate slightly above its peers. Its asset growth and loan growth also outstripped its peers as of December 2002, according to the agency. To an outsider, the difference over whether a credit union is a "Muslim" credit union or as an "Islamic" one can appear esoteric, said Kelly Morris, the Beltsville, Maryland, based consultant who has been working with the two credit union organizing groups. But the distinctions can be crucial and may mean the difference between whether credit unions make real progress in the Muslim world or not. Morris, who has worked in international development for almost 30 years, 19 for the Peace Corps and 10 years for the World Council of Credit Unions, explained that sometimes members of the credit union movement in the United States and worldwide have been handicapped by their attitude when it came to trying to establish Islamic credit unions. "We have sometimes had the attitude that we are the good guys, we are already committed to fighting usury, to standing up for the little guy," Morris said, "and we think that because we are already committed to doing good that some exceptions from Islamic law can be carved out for us because we are starting a credit union. Well, it won't be," he added. From the standpoint of starting a Western-style financial institution, the chief obstacle presented by Shari'a, or Islamic law, is the prohibition on earning interest that, Morris said, Shari'a regards as immoral when it involves one party in the transaction taking on all of its risk. "Central to the Islamic understanding of just lending is the concept of shared risk," Morris said. Credit union products and services that are going to be compliant with a truly Islamic understanding of money and lending will likely have to carry that concept. Shared risk lending would mean, for example, that a credit union might buy a car and sell the car to a member over a term of time for a fee. Every month the member would buy a bit more of the car for the cost of the car plus a fee that the credit union would charge for the service. Not wanting to deal with interest means that an Islamic credit union is going to be, in general, much more reliant on fee income, Morris said. Another example would be the credit union's contributions to the National Credit Union Share Insurance Fund, Morris said. The NCUA invests most of these assessments in the form or interest bearing securities but keeps some as cash reserves. An Islamic credit union might want to negotiate with the agency to make sure that its contributions to the NCUSIF were made part of the Fund's cash reserve and not invested for interest, he explained. Morris stressed that all these different arrangements and ways of handling things are possibilities, and not necessarily requirements, because no one had really tried to set up an Islamic credit union and Muslims are not monolithic in their beliefs. The Muslims in Michigan and Texas, he noted, were completely at home with the compromises that the credit union had made between Shari'a and participation in a Western banking system. But Morris also noted that devotion to Islam was growing among Muslims in the U.S. and around the world, for example in the newly independent formerly Soviet states in Central Asia, and someone who was a devout Muslim might not be as willing to accept the same compromises, he added. Certainly issues like the role of interest earning products and how the credit union's funds would be invested would likely require the NCUA either grant exceptions, if not outright waivers, to certain parts of its regulations. But Morris reported that the two organizing groups have found NCUA staff cooperative and supportive. The group in New York, he said, has even received NCUA's approval as to its proposed field of membership, Morris said, and has moved on to the stage of writing a business plan. No one at the agency was available to confirm this, or to comment on how the NCUA might treat the ins and outs of an Islamic credit union charter. "We say yes we are granting a charter or no we are not and that we are still working on it, but we don't talk about individual parts of the proposed charter," said Cherie Umbel, who spoke for the agency. Even though both organizing groups acknowledge the long-term difficulties of working with the NCUA and establishing Islamic credit unions, as well as the pioneering nature of their effort since they would be the first ones, Morris said that both groups remain firmly committed to the ideal. "I think in the wake of everything that has happened, the September 11 attacks and now the war, these groups want to emphasize the point that credit unions are really for everybody," Morris said. "They also want to indicate to everyone that, even though they are Muslim, they are more or less like everybody else. They need access to affordable financial services and they need credit unions. Credit unions are about as American as apple pie" he added. He said a commitment to religious freedom also drove the group's efforts. "People shouldn't have to be told how they need to believe or act out their faith in order to participate in a financial system," he said. He also said the effort to help Muslims establish credit unions that fit their religious principals can also help keep the overall credit union industry honest and mindful of its roots. "Sometimes I think we are in danger of getting too big, growing too much and forgetting what got us to where we are," Morris said. "Helping a group which will break new ground with their credit union is a way we can remember what we are all about in this effort." -

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