Nicholas Kaiser founded Saturna Capital in 1984 after being approached by Muslim investors looking to invest without violating Islamic teachings.
It's probably hard for most Americans to imagine a financial world without interest. We earn it in our savings accounts. We pay it when we shop with credit cards. In Silicon Valley, we couldn't dream of owning a home without a mortgage.
Yet devout Muslims follow strict rules about money, including a prohibition against interest known as riba. In addition, certain businesses are incompatible with Islamic law, including those involving alcohol, gambling, pornography or the production of pork.
Those religious convictions create difficult challenges for Muslims investors. But since 1984 Nicholas Kaiser, founder and president of Saturna Capital in Bellingham, Wash., has managed two highly rated socially responsible mutual funds guided by Islamic tenets: Amana Growth and Amana Income.
Personal finance reporter Mark Schwanhausser talked about the delicate balance of principles and profit when Kaiser visited Palo Alto to speak to investors this month.
Q: Can you describe what financial life is like in the Muslim world because interest is prohibited?
A: Clearly, the prohibition against interest is the big issue for personal finance. How do you, say, get a mortgage? How do you deal with banks?
The thing that's probably not well understood about Islam is that what you do and believe is up to you. Islam is a relationship between you and Allah. You're allowed a fair degree of latitude. If it's inconvenient to have a life without interest, that might be all right. That's up to you. It's just a teaching that it would be better if you didn't.
Q: What's the basic concept behind riba, the prohibition against interest?
A: What is not acceptable is where you are forced by some contract to pay me back. Therefore, I have an advantage over you. We are supposed to be equal before Allah.
So you restructure it so we're both sort of partners. Since we're partners in the deal, you put in more, you're going to get more back, but you're also put at bigger risk.
Q: How would you structure a mortgage?
A: You should be partners. In other words, if you're the bank and I'm the borrower, you should actually take an ownership interest, like a partnership. Let's say you start out owning 90 percent of it, and I own 10 percent. I would be paying you monthly, and my percentage might go up a half of 1 percent every month as I bought that share. I'm buying you out. Eventually I become the majority shareholder. Eventually, you're out of the deal.