By Daniel Bases - Analysis
NEW YORK (Reuters) - Ask about Islamic finance in the United States and the answer, even from a government regulator, is often another question: "Do you mean terror financing?"
Far from it.
Indeed, for what was once a main destination for devout Muslims around the world looking to invest using Islamic law as a guideline, the United States appears to have lost out to Europe, especially the United Kingdom, and Asia.
Many foreigners from the Middle East have been reluctant to bring their investments to U.S. financial markets after the Sept 11, 2001 attacks, as they fear their money might be misconstrued as linked to the activities of Islamic radicals.
That concern was compounded by the national security fears raised by U.S. politicians in 2006 after the United Arab Emirates' company, Dubai Ports World, bought major U.S. port facilities, and were forced to sell them to an American firm to quell the uproar.
"The common perception is that the U.S. is anti-Islamic finance, anti-Muslim, anti-Arab," said Isam Salah, head of the Islamic finance practice at the New York law firm King & Spalding.
"People in our shop sit around and think that is wrong. The Federal Reserve has had study groups (on Islamic finance) looking at it and is open to receiving applications. But they don't have their marketing hats on as much as the UK does," Salah said.
In 1997 and again in 1999, the Office of the Comptroller of the Currency, one of the regulators of U.S. banks, issued rulings giving permission for financial institutions to sell certain Islamic financial products.
Under sharia law, devout Muslims will not purchase assets that pay interest or earn profits from industries related to alcohol, gambling, or pork processing, among others.
Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz), the second-largest U.S. provider of home-loan financing, has for years bought Islamic home financing products to help borrowers who do not want to pay interest. Instead they pay a fee to the lender for sharing risk.
"The concept of interest does exist in Islam but it is more akin to the lender sharing the risk along with the borrower. The real prohibition is against both onerous collateral and usury," said Jean-Marc Oppenheim, professor of Middle East history at Teachers College, Columbia University in New York.
Assets invested according to Islamic guidelines, set out under sharia law, have been growing at 20 percent a year worldwide, reaching $900 billion in 2007, and are set to hit $2 trillion by 2010, accountants Ernst & Young estimated.
"We think a significant portion of the investments, if not a higher dollar volume, was going into the U.S. from 1995 until maybe the early 2000's," said King and Spalding's Salah, who has worked with Islamic finance legal issues for 13 years.
US MARKET
There are an estimated 2.35 million Muslim Americans, of which roughly 1.5 million are adults, a May 2007 study by the Pew Research Center found. Continued...
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