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Louisville Metro Government offers Sharia-compliant small business loans for Muslim residents

A pile of money including 100 dollar and 50 dollar bills.
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Under Islamic law, collecting or paying interest is forbidden.

Many traditional U.S. bank loans are not accessible to Muslims who follow Sharia. Louisville Metro Government is adding a new method to pay off loans through the city’s small business loan program that will comply with Islamic law.

Farhan Abdi, the executive director of the Somali Community of Louisville, said Muslims in the city who follow Sharia have struggled to obtain loans that are religiously permissible.

Under Islamic law, collecting or paying interest is forbidden. That means most American loan programs are inaccessible to many Muslims.

The majority of Somali immigrants in Louisville are Muslim, and according to Abdi, many are business owners as well. He said Muslim-owned small businesses struggle without more access to capital, and when COVID-19 hit, he saw many shutter their doors.

“I was terrified to see our small businesses closing,” Abdi said. “And that's when I started talking to the Office of Globalization, now called the Office of Immigrant Affairs.”

Three years later, Louisville Metro Government announced an optional modification to the city’s small business loan program, Metropolitan Business Development Corporation, or METCO. Rather than pay interest, recipients can pay a service fee over the life of their loan that equals what the interest would have been.

Amos Izerimana, the director of the Office for Immigrant Affairs, said the system was relatively simple to set up and expands accessibility for Muslim residents.

“It lends to really celebrating the diversity of faith that we have in our community, so that everyone has equitable access to the services and programs that the city has to offer,” Izerimana said.

Izerimana said the modification will be available to everyone, not just Muslim recipients. It’s currently available for three METCO programs: small business start up/expansion loans, project gap loans, and the business accelerator.

Officials consulted with experts of Islamic law and community members to ensure the modification was fully in compliance and would serve the needs of the community. Abdi, who was one of the advisors, said he’s already begun receiving emails from people interested in applying for the Sharia-compliant alternative.

“[The city is] creating a big market for Muslim communities, where they will have an opportunity now,” Abdi said. “I'm getting so many calls, people asking me, ‘Where can I find this loan?’”

Some Louisville nonprofits, including Jewish Family and Career Services and LHOME, already offer microloans that are Sharia-compliant. But Abdi said they weren’t always for large enough amounts.

Abdi said he knew some families who felt they had to leave Louisville because it did not have inclusive options for Muslim business owners, but he hopes changes like METCO’s will encourage new businesses and bring more families to the city.

Izerimana said the same problem also exists for mortgages and personal loans. He has spoken with various local banks about offering a Sharia-compliant option.

Sylvia is the Capitol reporter for Kentucky Public Radio, a collaboration including Louisville Public Media, WEKU-Richmond, WKU Public Radio and WKMS-Murray. Email her at sgoodman@lpm.org.