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ANALYSIS

NEWHORIZON April–June 2009

Islamic banks in the United States:
breaking through the barriers
Abdi Shayesteh, senior associate with the King & Spalding law firm in New York and a member of the Middle East and Islamic finance practice group, takes a look at what the US Islamic finance market has to offer.

The question of whether US regulators will
be accommodating towards the growth of
Islamic banking is now moot. Today, the
United States is home to at least nineteen
providers of Islamic banking products and
services, including retail banks, investment
banks, mortgage companies, investment
advisors and community-based finance
providers (see the chart on pp38–39). With
the estimated number of Muslims living in
the country ranging from three to eight million (based on various private surveys) it now appears that real market demand and
viability for offering Islamic banking products and services in the US either exists or is being developed and penetrated by these
early-to-market providers.
Given these positive factors and the push
by Gulf-based Islamic institutions to establish a strong presence in the United Kingdom, their absence from the US is puzzling. One explanation is that Gulf-based Islamic
institutions are most likely suffering from
a mirage of barriers and a set of misunderstandings when it comes to entering the US market.
One significant mirage relates to a misperception that US regulators are not interested in the growth of Islamic banking. Unfortunately, many believe that they are resistant towards the growth of the industry in the

US, just because the country’s officials are
not as vocal or direct about expressing their
interest as their counterparts are in the UK.
Many Gulf bankers have noted that they
would like to hear the same type of ‘cheerleading’ speeches like the ones made by 1 IIBI

Gordon Brown (UK’s prime minister) or
Kitty Ussher (formerly a Treasury minister
and now parliamentary under secretary at
the Department of Work and Pensions) in
recent years – where London has been declared to be ‘the next global hub for Islamic banking’. The important thing to note,
however, is that just because US officials
don’t offer the same type of direct declarations, it does not mean that they are not interested in accommodating the growth of the industry. The reality is that US regulators have significant constitutional, policy and economic reasons to accommodate the

growth of Islamic banking in the country.
From a constitutional perspective, US regulators are (and will continue to be) involved, in part, because it is their duty as public
servants under the US Constitution to make
sure they accommodate the free exercise of
religion, even as it relates to banking practices. There is a limit to this accommodation, however, in that the constitution also prohibits the promotion of a particular
religion over another by a public official or
agency. This limit may explain why we don’t
see the same type of direct encouragement
from US officials like the ones witnessed in
the UK.
From a policy perspective, US regulators
may have an interest in accommodating the
growth of Islamic banking as a means of
providing banking services to the unbanked
population. For example, many Muslims in
the country currently do not bank at a conventional bank because doing so violates Shari’ah restrictions on the receipt and payment of interest. US regulatory involvement

Abdi Shayesteh,
King & Spalding

with Islamic-centric banks or banks that
seek to offer Islamic products and services
would be seen as a means to enhance community development activities in such unbanked segments. Finally, from a macro-economic perspective,
the United States, like other western countries, has every interest in attracting Gulfbased capital that has built up over the last five years due to the bullish oil market. Accommodating Islamic finance may be one way to entice this capital to come back...
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