Manezha Sukhanyar is from Afghanistan and recently graduated from Colorado State University’s College of Business Impact MBA program. While in school she partnered with two other students, Marya Skotte and Beth Hsu, to create a financial consulting company called Immpower.
But before their degrees were conferred in December, Immpower had to complete their final assignment, pitching their business venture to possible investors.
Sukhanyar started the Zoom presentation with a story about Tarek. His dream is to open a restaurant and support his family.
“He needs financing, but he can’t find any product that aligns with his Muslim faith,” she said. “He is looking for is interest-free financing.”
Or in other words, what is called Islamic finance. It is an alternative financial system based on Shariah, which prohibits interest-based loans. Under this system, a bank customer can still get a loan to start a business or buy a car just like conventional financing. But, Sukhanyar said, there is one key difference.
“The relation between the borrower and lender is totally different. It’s more into a partnership like a buyer and seller,” she said.
Sukhanyar has worked in this field for over a decade and served as chief of Islamic banking and vice-chair of the Afghanistan Banking Association. The partnership between lender and borrower is built on trust, she explained — they share the profits and the risks until the loan is repaid.
Since 2009, the Federal Deposit Insurance Corporation has conducted a biennial survey to collect information on Americans’ banking habits. In 2019, 3.3% of households in Colorado were unbanked, which means they did not have a checking or savings account or use other financial systems. The number one reason people gave for being unbanked is not having enough money to meet minimum balances, followed by a distrust of banks.
Immpower hopes Islamic finance will provide an alternative for people who are locked out of mainstream banking.
“(People) need this financing because it's fair, sustainable, and it just emphasize(s) an equal financial opportunity for everyone,” said Sukhanyar.
'For humanity'
Islamic finance originated at the beginning of Islam in Mecca in the 7th century. Even though the system has existed for centuries, said Ghiyath Nakshbendi, a professor at Kogod School of Business at American University, the first bank opened in Egypt in the 1960s and the lending system grew from there.
“The expansion started in certain countries in the Gulf, then it went to Muslim countries and then it went to European countries,” he said.
Today, there are more than 300 banks and 250 mutual funds worldwide that offer Islamic compliant products, which experts say account for roughly 5% of the global financial system. There are about 25 Islamic financial institutions in the U.S., and demand is expected to grow as the country’s population of 3.45 million Muslims increases.
But Islamic finance is not just for Muslims. In fact, Nakshbendi prefers to call it alternative finance.
“People hear the so-called Islamic finance, they say, 'oh, so we have to have it in countries where there are Muslims,'” he said. “My answer is, 'you are wrong.' Why? Because alternative finance is for humanity.”
Nakshbendi started teaching the system at Kogod in 2014 and three years later created what he believes to be the first graduate certificate in Islamic finance. One reason students enroll in the courses, he said, is because the system doesn’t fund businesses with products like pork, alcohol or gambling.
“The attraction of Islamic finance or alternative finance is focused on creating business activities that will benefit the community,” he said.
'Sustainable in finance'
Islamic finance can seem like a new concept to most Americans and people around the world. Immpower’s Hsu is from Taiwan and had never heard of the financial system until she linked up with Sukhanyar and Skotte. She was surprised that a sustainable finance system exists.
“I think it’s really amazing,” she said. “Lenders are willing to do like ownership with their borrowers and they try to be more sustainable in finance.”
Sustainability is why Hsu, Sukhanyar and Skotte pursued Islamic finance as a business venture while at CSU. The Impact MBA program focuses on creating socially responsible and sustainable businesses.
Before attending CSU, Skotte worked as a financial coach at the International Rescue Committee in Oakland. She helped refugees and immigrants with budgeting, banking, and wealth building. But when Skotte talked to her clients about getting an interest-bearing loan to purchase a car or go to school, they said no.
That was her first exposure to Islamic finance.
“That was really tricky to navigate and really interesting to navigate,” she said.
'Fulfill their dream'
During Immpower’s pitch presentation, Skotte said they work with mission-driven lenders to create and offer Islamic finance products, train their staff and provide easy-to-use contract templates.
“We are offering a new business model,” she said. “Immpower will be the first and only Islamic finance system development firm in the U.S. who is working with CDFIs and mission-driven lenders.”
CDFI stands for Community Development Financial Institution, which provides services to low-income and underserved communities. There are about 1,000 certified CDFIs across the country, according to the federal government.
Agraj Dangal is an operations officer at Aurora-based Community Enterprise Development Services (CEDS Finance), which provides business loans. The nonprofit was started in 2009 to serve refugees and immigrant communities. Since then, its customer base has expanded to include minorities and U.S.-born clients.
“We basically do microloans. That means up to $50,000 and up to five years of term,” said Dangal. “A lot of our clients don’t meet the requirement for the traditional banks and financial institution.”
CEDS Finance is the only Colorado lender to offer an Islamic-compliant loan called Murabaha. While Murabaha does not charge interest, there is an administrative fee that’s calculated based upon the risk associated with the loan.
“Our objective is to help entrepreneurs fulfill their dream,” said Dangral.
About 35% to 40% of CEDS Finance’s portfolio is Islamic-compliant debt. So, the organization worked with Immpower to figure out how to better serve these clients. This included a market analysis, interviews with clients and creating a theoretical Shariah-compliant line of credit.
“There's just so many products out there and none of it really is being offered except for a very small percentage in the US market,” said Skotte. “That's kind of cool. It's like there's just so much opportunity to expand.”
Skotte wraps up Immpower’s presentation with a call to action. This is just the first of many pitch meetings they hope to have in the future. Immpower wants to work with other financial institutions to help provide more lending options to Muslims, refugees and other immigrant and underserved communities in Colorado.
“You can help us disrupt the current financial system that is failing too many,” she said. “What we’re doing is all about providing equity, access and transforming system for a better world for us all.”
