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I continued my survey of the USA Islamic finance scene in my July column for the magazine "Islamic Finance News."

You can read it below.

A look at American Finance House Lariba

This month I look again at the US Islamic finance scene, this time with American Finance House Lariba (“LARIBA”).

The LARIBA website www.lariba.com discloses that it is a California Corporation but says nothing about its ownership. While I found its records on the California Secretary of State’s website, no financial information is disclosed, and extensive searching elsewhere also found nothing.

This exercise reminds me how fortunate we are in the UK that all companies have to file at least some publicly available accounting information with our Registrar of Companies.

As well as home financing, commercial and business financing, and new car finance, LARIBA’s website also offers full service riba free banking. Clicking that takes you from the LARIBA website to the website of Bank of Whittier NA which is a fully licensed bank and an FDIC (Federal Deposit Insurance Corporation) member.

Bank of Whittier NA is a wholly owned subsidiary of Greater Pacific Bancshares, a company which seems to do nothing else apart from own Bank of Whittier NA. It does publish accounts which for calendar 2021 reported net income of US$ 1.3m, and shareholders equity at 31 December 2021 of US$ 19.6m. (Obviously it is a relatively small bank.)

The return on closing equity of 6.6% I consider respectable given the pandemic circumstances of 2021. The accounts do not mention any of the words “riba”, “Islamic”, “Shariah” or “LARIBA” although the Bank of Whittier NA website emphasises its riba free banking offering.

[While posting this page, I have found the 2022 financial statements, which include 2021 as a comparative.]

LARIBA and Bank of Whittier share the same physical address in Whittier, California.

Further research established that LARIBA was created in 1987 to enable Shariah compliant home purchasing. Its operating model is described in detail on its website and involves diminishing musharaka with fixed equal monthly purchases of slices of the property from LARIBA by the customer, with LARIBA charging rent on its share of the property by reference to local rental rates, rather than by reference to market interest rates.

However, the transactions are legally structured to comply with the requirements of the US mortgage agencies like Freddie Mac so that the home purchase plans can be sold by LARIBA to the agencies in the same way that conventional banks originate and then sell on mortgages.

Bank of Whittier NA was set up by the same individuals who set up LARIBA, and there is significant overlap of management, despite the limited disclosure on the website.

Overall, this is another illustration of the kind of Muslim “self-help” that has been possible in the USA.

Due to the existence of a real estate transaction tax, and a tax regime where the legal form of a transaction largely dictates the tax treatment, the UK (and some other European countries) needed tax law changes before Islamic finance could take off. However, in the different tax environment of the USA, it has been possible to practice Islamic finance without needing preliminary tax law changes.

Mohammed Amin is an Islamic finance consultant and former tax partner at PwC in the UK.