University Bancorp of Ann Arbor, Mich., announced Friday that it had it has created a unit that will focus on providing banking services to Muslims.
University Islamic Financial Corp. will offer deposit products and home loans that adhere to Islamic law, which prohibits charging or paying interest. It was capitalized with about $15.6 million of shareholder equity.
The $56 million-asset University Bancorp owns 80% of the unit. It sold a 20% stake to Virtue Investors LLC of Grand Rapids, Mich.
University Islamic represents "a major milestone in University Bank's Islamic banking activities and gives us the resources to put us on an accelerated growth curve," said Stephen Lange Ranzini, the holding company's president and chairman, in a press release.
His company has been offering special products for Muslim customers since 2003 and has made $14.5 million of the no-interest loans to date. In 2004 it hired a mortgage officer, Adnan Mirza, as an Islamic financing specialist and sell these products to southeastern Michigan's large Muslim population. Since then it has hired three other Islamic bankers.
University makes no-interest loans by setting up a special trust for the property a borrower is seeking to buy. The borrower leases the property on a rent-to-own basis and agrees to take ownership at the end of the agreement, which is usually written to last 30 years. The bank makes its return off of the rent on the property.
University said also that it is negotiating a deal with "a major government-sponsored enterprise" that would create a secondary market for its Islamic mortgages.
