A small bank in suburban Detroit says it has found the formula for attracting the region’s hundreds of thousands of devout Muslims.

Serving the nation’s growing Muslim population poses a challenge for mainstream banks, because Islamic law forbids the receipt or payment of interest. The issue is particularly important in southeastern Michigan, which is home to the nation’s biggest Arab-American community.

University Bancorp Inc., which is based in Ann Arbor, began offering a no-interest mortgage product last year. Last week it hired a mortgage officer whose sole job is to sell the product, the Mortgage Alternative Loan Transaction, or Malt.

Adnan Mirza, the new loan officer, said the $43.4 million-asset University has had limited success with Malt since introducing it last summer. To date University has closed $3 million of Malts.

How does a bank make money on a no-interest loan?

University creates a special trust for the property the borrower is seeking to buy. The borrower then leases the property in a rent-to-own arrangement and promises to take ownership at the end of the agreement’s lifespan, typically 30 years. The bank gets a return from the rental payments…


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