In 2005, Afrik Grocery and Halal Meat on Cedar Avenue needed to expand. Owner Abdi Adem, who operates his business under Sharia law, needed to find a loan that funded the expansion and complied with his religious beliefs.
Finding the loan was easier than he expected.
Since December 2006, the city of Minneapolis, in partnership with the African Development Center, has given out 54 loans in a way that is compliant with Islamic law by using a fixed rate in place of a variable interest rate, which some considered sinful.
Instead of charging interest, the city and the ADC estimate how long it will take the business to pay off the loan and totals what the interest would be. That amount is added as a lump sum to the total cost of the loan.
âÄúIt feels like, looks like and acts like a loan, but itâÄôs just a different way of looking at it,âÄù said Hussein Samatar, executive director of the ADC.
Abdulwahid Qalinle, an adjunct associate professor of Islamic law at the University of Minnesota, said interest rates can be considered sinful under Sharia law.
âÄúIslam has specific guidelines where people can acquire wealth and how to spend their wealth,âÄù Qalinle said.
Through the Alternative Financing Program, small lenders âÄî usually the ADC âÄî will offer a loan and the city will match it up to $50,000. Business owners will then pay back the lender and the city.
The loans can be used for buying equipment or making renovations.
Becky Shaw, an economic development specialist with the city, said most loans are around $5,000 to $10,000 and are paid off within three years.
Shaw added that although the loans are targeted toward Muslims, any business owner can apply for a similar loan with an interest rate that has a similar effect as the Sharia law loans. The city also offers a handful of other business assistance programs.
Of the 54 loans the city and the ADC has given, only one has gone into default.
According to a 2009 report from the Small Business Administration, the national default rates are around 12 percent.
âÄúThis really, truly has been one of the phenomenal success stories of Minneapolis,âÄù Samatar said.
Through the loan, Adem borrowed $42,000 and was able to move his business down the street, expand his halal meat section and purchase new equipment, which he said helped attract new customers.
Adem paid off his loan in 2009.
âÄúI benefited very much from the loan. The customers liked the new store and we liked it,âÄù said Adem.
Although he has no immediate plans to expand his business, Adem said itâÄôs nice to know the loans are available to him.
âÄúI donâÄôt want to go to the bank and get charged for interest,âÄù he said. âÄúIf I need more funds, I can use [the program] again, not now, but if I need it I can go and get it.âÄù