Devon Bank strives to satisfy the financial services needs of a diverse customer base. This includes providing for religious-based financial transactions such as those required by Islamic religious law (Shariah).
Some traditional U.S banking practices are not consistent with Islamic law. For instance, Islamic law prohibits the paying of interest to a bank in lending transactions (though it allows for the payment of “profit”). Devon Bank strives to accommodate these religious restrictions while still providing the financial assistance a customer may need to purchase a home, build credit, and solidify a foundation for their family's finances.
Devon Bank’s lending policy is to provide rates competitive with its peers. The Bank attempts to translate that policy into practice in its religious finance programs where the collecting of interest is prohibited. However, religious-based financial transactions often do have some additional costs associated with them that exceed those of non-Shariah compliant financing transactions. The amount of additional cost depends on the level of complexity and documentation required to satisfy particular religious concerns.
An interest-free “Ijarah” transaction provides more flexibility than some other forms of Islamic financing, however, an Ijarah transaction does involve additional costs and complexities. An ijarah transaction involves two components: a purchase agreement and a lease. You go out and find the property you would like us to purchase on your behalf. You negotiate the price and other aspects of the purchase. You make any initial payment of earnest money to reserve the property. You make sure that the purchase contract allows Devon Bank to step into the transaction as the buyer. The Bank then buys the property. At the closing, the Bank enters into an agreement to sell the property to you for a fixed price-the purchase price the Bank paid plus any transaction costs not paid by you at the closing. Ownership of the property is transferred to you after this price has been paid to the Bank. A payment schedule is established so that in exchange for keeping the property rented, your payments are deferred over time. These payments increase over time. The lessee, presumably you, also pays the Bank rent on the property the lessee is using but does not own. To the extent that you are making payments towards ownership under the purchase agreement, your rent will go down over time to reflect payments you have made towards the purchase of the property.
The transaction allows for recalculation of rent at periodic intervals over the term of the transaction. Part of the rent payment is tied to specific costs, such as taxes and insurance which is adjusted annually. A second rent component is calculated based on an index identified at the beginning of the transaction, or it may be fixed long-term. Ijarah transactions make full or partial payments clear and easy to track.
All direct costs borne by Devon Bank (such as appraisal fees, taxes, recording costs, etc.) are either paid by you at the beginning of the transaction or are figured into the rent. There are no “points” charged directly in such a transaction. For those who do not want the higher cost, and do not need the flexibility offered by an Ijarah transaction, the Bank also offers the option of a Murabaha transaction.
Regardless of the religious accommodation underlying such a transaction, these transactions must comply with all applicable U.S. Government regulations. For example, although structured as an interest-free transaction, the Bank is required to calculate a corresponding interest rate, and we may need to disclose that rate to you in a government-required manner.
Because Devon Bank is an independent community bank and all decisions are made locally, we have the ability to structure financial arrangements to suit our customers’ needs. Please contact Devon Bank at (773) or (847) 465-2500 to find out how we can structure a financial transaction that meets your personal or business religious requirements.