The Ann Arbor-based University Bank has created the University Islamic Financial Corp. to offer Muslims home financing, deposit accounts and Islamic mutual fund shares.
"The formation of the subsidiary allows us to have a financial institution which is 100 percent in compliance with the Muslim Shariah, the legal code of the Islamic religion," bank President and Chairman Stephen Lange Ranzini told The Ann Arbor News for a Saturday story.
Among the laws of Shariah is a ban against paying or receiving interest.
The bank's Islamic deposit accounts allow Muslims to open accounts where any profits are shared rather than paid as interest.
University Bank also offers a mortgage alternative loan transaction program - or MALT - which replaces a traditional home loan with a redeemable lease.
The bank holds the home in trust, and a home buyer makes monthly payments to that trust. Each rent payment includes a set amount of savings, which builds the buyer's equity in the home. When the savings account equals the home's original purchase price, the buyer owns it.
The mortgages are offered across the state, with 57 families in the Detroit area having such loans, and Ranzini said plans are to offer such mortgages nationwide.
Other banks also are targeting Muslims, said Tracey Mills, a spokeswoman for the American Bankers Association trade group.
"There have been other banks that have formed relationships with the Islamic community, developing lending products that aren't in violation with Islamic law," she said.
The Institute of Islamic Banking & Insurance, an independent Islamic finance academic and research group in London, says that more than 250 Islamic banks around the world manage more than $200 billion (euro169.5 billion).
Ranzini said the University Islamic Financial Corp. will allow the University Bank to expand its capital base. He expects the bank, a subsidiary of the Ann Arbor-based University Bancorp financial holding company, will double its assets, which were listed at $56.5 million (euro47.9 million) on Sept. 30.
He said the corporation was formed with $15.5 million (euro13.1 million) raised through the sale of 40,000 shares of private stock.
The bank owns 80 percent of the corporation while the remaining 20 percent is held by Virtue Investors LLC, a group of private investors from Grand Rapids, Michigan, Ranzini said.
Ann Arbor is best known as the site of the main campus of the University of Michigan.