Friday, April 16, 2010
Cash flows from ‘beautiful loan’
Local members of Dawoodi Bohra religious sect finance businesses outside banking system
Slipping off his shoes, Mohammad Millwala places them neatly in a row with two dozen other pairs as he enters the annex to a mosque, just east of Katy. He says it’s going to be a busy day.
Millwala and some 200 other members of the Dawoodi Bohra congregation at the Mohammedi Masjid mosque, clad in traditional knee-length white robes and skullcaps adorned with gold Arabic lettering, have set up about 60 booths displaying their businesses.
Entrepreneurs meander around the hall, exchanging business cards and networking. Like other similar business events, experts give lectures on starting and maintaining a business and peers offer advice and mentorship.
Yet among these business owners, the typical buzzwords heard around Houston at other trade shows and business conferences in the wake of the credit crunch and recession are missing. There’s no talk of foreclosures here. No worrying about credit scores, or finance charges or repo men. In fact, there’s little talk of debt at all.
That’s because for the owners who gathered last month at the Burhani Business Expo — including multimillion-dollar health care technology companies, manufacturing and import companies and sign installation companies — traditional bank financing does not exist.
Millwala, CEO of Houston-based bio-tech company 
DM Clinical Research, as well as most of the other business owners gathered on this balmy Sunday afternoon, received startup capital through what’s known as Qardan Hasana, an interest-free loan scheme kept within their religious sect.
Tightly knit
Systems like Qardan Hasana are gaining popularity among various religious groups, notably the Muslim community, which are creating an underground economy of sorts with a cooperative lending model in a time when most traditional banks are patching up their recession-battered books and have tightened loan criteria to an extent not seen in years.
“We don’t take interest from banks, we have our own financing system where we give out loans to people and they have 24 months to pay it back,” says Nooruddin Yamani, president of the Burhani Business Counseling Center of Houston, the community organization that sponsored the event.
“We are able to do all our business interest free,” he says. “We are blessed with that.”
Yamani and the rest of the group gathered on that Sunday afternoon belong to the tightly knit Dawoodi Bohra community, a subsect of Shia Islam with strong ties to the region around Mumbai, India.
The Dawoodi Bohra began to settle in the U.S. in the 1960s, mostly in New York City and Chicago. Houston’s community was established in 1978 with about 60 families and today has grown to more than 400 families, centered largely in the Katy area. Worldwide, there are an estimated 1 million Dawoodi Bohra.
Like many other sects of the Muslim faith, it is against the beliefs of Dawoodi Bohras to engage in business deals that involve interest-based financing. Credit cards, car loans and home mortgages are all off limits.
“It’s one of the main principles of Islam,” says Yamani, pointing to the screen on his iPhone displaying the appropriate verses of the Quran regarding interest, or riba.
So wherever they settle, Yamani says, Dawoodi Bohra communities incorporate their age-old tradition of interest-free financing.
Guarantors required
In Qardan Hasana — which translates to “beautiful loan” — community members can apply to a local or national board for loans to start a business, go to college or buy cars and homes. In accordance with their beliefs, all the transactions are interest-free. The system works much like a credit union in that it is a cooperative funded by members of the community for the benefit of the group as a whole (see box above).
When a member wants a loan, two guarantors — who must also be members of the community in good standing — must be lined up to offer to repay the loan if the borrower defaults.
The borrower then submits an application explaining what he intends to do with the funds, be it purchase a home or use it as capital to start a business. For commercial loans, he must include a business proposal.
A Qardan Hasana board traditionally loans between 30 percent to 60 percent of a project, with about 30 percent put up-front by the borrower and another 20 percent to 30 percent supplied by the borrower’s family.
Borrowers must also offer a series of post-dated checks and a symbolic item of monetary or emotional value as collateral. Once accepted, borrowers have 24 to 36 months to pay back the loan.
The “loan” pool is funded by successful business leaders in the community and through grants from the state or national Qardan Hasana governing bodies.
