Aug 6, 2005
Capitalism and Culture - Islamic Mortgages
From today's Detroit Free Press comes an interesting story about University Bank in Ann Arbor offering"Islamic Mortgages." Traditional interpretations of the Koran prohibit the charging of interest, making traditional mortgages not in Sharia (compliance with Islamic law). University Bank, like a small number of other banks around the country, offers a lease-to-own arrangement that has the same practical effect as a mortgage but without the explicit charging of interest. Because the overhead costs are higher than traditional mortgages (mainly because there's no secondary market, thus banks have to manage them in-house), they are slightly more expensive, but apparently devout Muslims are willing to pay that premium.
These mortgages have also posed some complications for regulators and insurance companies, who have to be persuaded to treat them like standard mortgages (the key difference being that the bank really does own the property not the residents). However, these seem to be getting resolved.
I'd argue that this sort of thing is an excellent example of how market capitalism is not a destroyer of unique cultures creating one"McWorld," but rather a flexible, dynamic set of institutions that can adapt to changes in the culture. It is only within the dynamism of the market that one can adapt ways of doing business that are"traditional" to one culture to the needs of another culture when those needs arise. So not only do we have US banks altering their practices to accommodate a distinct minority demand (something defenders of markets have long argued as one of their strengths), we also have a potential blueprint of how market institutions and practices can emerge in Muslim societies with very different ethical principles.
The best part to me is that these sorts of changes can happen in the market in small pockets and spread through imitation. They don't require extensive discussion and debate. They don't require a political voting process where the majority has to be persuaded to agree with the change. Can you imagine what it would take to make such a change in a world where banks were run by the state? The ecosystem of the market makes it much easier for a thousand flowers to bloom, and to accommodate the needs of a religous group whose numbers remain pretty small within the US.
Oh yeah, it's also another example to combat the belief that Muslims are being systematically discriminated against post 9/11.
These mortgages have also posed some complications for regulators and insurance companies, who have to be persuaded to treat them like standard mortgages (the key difference being that the bank really does own the property not the residents). However, these seem to be getting resolved.
I'd argue that this sort of thing is an excellent example of how market capitalism is not a destroyer of unique cultures creating one"McWorld," but rather a flexible, dynamic set of institutions that can adapt to changes in the culture. It is only within the dynamism of the market that one can adapt ways of doing business that are"traditional" to one culture to the needs of another culture when those needs arise. So not only do we have US banks altering their practices to accommodate a distinct minority demand (something defenders of markets have long argued as one of their strengths), we also have a potential blueprint of how market institutions and practices can emerge in Muslim societies with very different ethical principles.
The best part to me is that these sorts of changes can happen in the market in small pockets and spread through imitation. They don't require extensive discussion and debate. They don't require a political voting process where the majority has to be persuaded to agree with the change. Can you imagine what it would take to make such a change in a world where banks were run by the state? The ecosystem of the market makes it much easier for a thousand flowers to bloom, and to accommodate the needs of a religous group whose numbers remain pretty small within the US.
Oh yeah, it's also another example to combat the belief that Muslims are being systematically discriminated against post 9/11.