LARIBA (Islamic) Mortgages - The Market

The first and foremost market segment, which should be addressed, is the small minority of American Muslims who refused to participate in RIBA under any circumstance. Many of these households have reasonable cash savings but not enough to buy a home. Their balance sheets are clean of any debt of any sort. It is the moral responsibility of the LARIBA (Islamic) bankers and investment/mortgage bankers to cater to the needs of this "Puritan" segment of the community. It is important to note that the term Puritan is used here in American LARIBA on purpose. The term "Puritan" conveys the core principles of American democratic freedom and virtue through industriousness and property ownership.

It is estimated this segment represents approximately 1 to 2% of the professional segment of the community. If we assume that there are 1.5 million Muslim households in America and that 50% can afford buying and maintaining a home then the total number of households in the Muslim community that would buy homes is approximately 750,000 households. Further, if we assume that only 20% want to live according to Islamic laws; i.e. praying, attending Friday prayers and Eid prayers, paying Zakat and performing Hajj, then the number of households would be 150,000. If we assume that 5to 10% of this number are "LARIBA Puritans" dedicated to deal only in LARIBA, then the number of households which is in need for LARIBA financing is estimated to be 7,500 to 15,000 households. We estimate that the market size is approximately 10,000 households in order to be on the safe side.

This almost 10,000 households represent the real successful puritans who are businessmen/ women, manufacturers, engineers, medical doctors, religious leaders and merchants.

They want to make sure of the validity of the LARIBA (Islamic) mortgage model and approach and they want to check it with their most respected and trusted religious scholar (usually back in Pakistan or other Muslim countries). The profile of this unique market segment is unique. They are extremely pious. They run cash only household. They use the banks for safe deposits of fund and refuse to accept money market interest. They carry no debt. They pay their obligations on time. They fulfill their obligations. They are honorable and extremely successful and reputable. They do not show off their success and accumulated saving because of their training to be humble. They are extremely particular about details of HALAL and HARAM. They are very difficult to give their trust. However, if one earns their trust, it will be given in full. They are devout members of the community. They can be classified as the best credit worthy members of a community. They only can be recognized if those LARIBA (Islamic) bankers are true community workers on a grassroots level.

The typical house price varies from one state to another. It is estimated to be $250,000 in California and $ 120,000 in Texas. We use an average of $150,000 throughout this study for convenience. So, if we assume that 70% of the value of the home is to be financed using LARIBA (Islamic) mortgage, or the mortgage would be $105,000. For a market of 7,500 households, it is estimated that the primary market size for LARIBA mortgages to be $780 million. If one assumes a 25% turnover (which is a function of the term of finance assumed here to be 4 to 8 years), this primary market segment size is estimated to be approximately $200 million. As the concept gains credibility and proven track record, we expect the concept of LARIBA mortgages to grow significantly to attract members of the middle class through refinancing, non-Muslims who will like the concept and the new generation of youths who are more sophisticated in evaluating alternative mortgage concepts.