Prospects, Problems and
Challenges of
Islamic Financial and Banking
Services in the USA
By
Dr. Yahia Abdul-Rahman, Founder,
American Finance House LARIBA
&
Mike Maguid Abdelaaty, President,
American Finance House LARIBA
Agenda
z
z
z
z
z
z
z
z
The Market
Segmenting the Market
Sizing the Market Segments
Profile of Market Entrants
Potential Alternative Model (Murabaha)
Problems & Challenges
Proposed Solutions
Conclusion
1
THE MARKET
Market Segmentation
Muslim
Households
1.5 Million
Cannot Afford
to Buy Home
750,000
Can AFFORD
To BUY HOME
750,000
Do NOT live
Islamic Laws
80%
600,000
Live according to
Islamic Laws
20%
150,000
Puritans
Very CREDIT WORTHY
Assume 7.5%
10,000
Forced to Use
CONVENTIONAL
Assume 60%
90,000
Reservations about
Islamic Products/Services
Assuume 30%
45,000
2
Residential Mortgage
Market Sizing the Segments
Puritans
Forced
Object
4725000
SE
G
M
E
N
T
9450000
1050000
0
500000 1E+07
(thousands$)
0
U.S. Competitors
AFH
LARIBA
MSI
Al-Manzil
Funding
Investors
United Bank
of Kuwait
Model
LTP /
Declining
Equity
Title
Borrower
Investor /
Borrower
L.P.’s
Shared
appreciation
(RTO)
Joint
Payment
Calc.
RonC
RofC
Yearly
appraisal
LIBOR
Rent to Own
(RTO)
Lender
3
U.S. Competitors (cont.)
Prepayment
Maintenance
Costs / Taxes
AFH
MSI
Al-Manzil
No penalty ;
partial prepayment
Borrower
Up to 20% of
price
annually
Shared tax/
insurance.
Borrower
maintenance
None
Need consent
and purchase
all
Borrower.
Takaful
Insurance
Shared
Borrower
Tax
Form 1098
Deduction
Share of Gains Borrower
/ Loss
Form 1098
Murabaha Model
z Cost
Plus Model
z Instant Transfer of Title
z Capital Gain for the Financing Entity
z Inaccurate, disadvantageous cost basis for
buyer.
4
Problems
& Challenges
z
“Islamic”
z
Channel Issues
z
Cost (Mark to Market)
z
Communication
z
Limited Products
z
Awareness
z
Definition
z
Training
Proposed Solutions
z Common
z Training
equivalent terms
Muslim American Bankers
z Community
Reinvestment Approval
5
Conclusion
z Enormous
z Potential
Demand ; Little Supply
for Exponential Market Growth
z Delineate
Authority
z Tradition
of Innovation must be inclusive
6