Ahmec-OCC-Interpretive-Ltr-re-Murabaha-10-7-11 -...

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Comptroller of the Currency Administrator of National Banks Northeastern District Office of the District Counsel 1114 Avenue of the Americas, Suite 3900 Voice (212) 790-4010 New York, New York 10036-7780 Fax (212) 790-4058 Interpretive Letter #867 November 1999 12 USC 24(7) 12 USC 29 June 1, 1999 Dear [ ] : This responds to your letter of February 8, 1999 to William P. Reinhardt, requesting our opinion on whether [ ] (“ ” or “Branch”), a Federal branch located in [ City, State ] , may offer Murabaha financing products as part of the business of banking, pursuant to 12 U.S.C. § 24 (Seventh). [ ] would like to offer these products to meet the special needs of its customers who adhere to the principles of Islam. The religious prescriptions of Islam or other faiths prohibit customers from borrowing money where the lender charges interest and, therefore, effectively prohibit such customers from engaging in loan transactions with the Branch. [ ] proposes an alternative arrangement, known as a Murabaha financing facility, to help Islamic customers engage in real estate financing transactions and commercial inventory and equipment financing transactions with the Branch. Under the Murabaha financing facility, [ ] will essentially be functioning in a “riskless principal”/quasi- agency capacity, an activity which is not barred by section 29 of the National Bank Act and is permissible under section 24(Seventh). The Branch will acquire the property on behalf of the customer and then resell the property to the customer at a mark up on an installment basis. The Branch would like to use Murabaha financing facilities for the acquisition of real estate properties, real estate construction transactions, commercial inventory operations and the acquisition of commercial equipment to accommodate Islamic schools, mosques, community centers and businesses that traditionally have not had access to financing arrangements that are consistent with the religious beliefs of the participants in such community entities or the owners of such businesses. [ ] believes that the Murabaha financing transactions are permissible for a national bank and that the economic substance of the Murabaha financing transactions is functionally
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- 2 - The OCC previously approved a net lease arrangement for [ ] ’s real estate transactions that was 1 consistent with the religious prescriptions of Islam or other faiths. See OCC Interpretive Letter No. 806, reprinted in [1997-1998 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81,253 (October 17, 1997). Under this net lease arrangement, acquired the property on behalf of the customer and leased the property back to the customer under a financing agreement over a period of time. Unfortunately, the net lease proved unworkable for certain not-for-profit customers of the Branch because the underlying real estate was subjected to various forms of taxation since it was held in the Branch’s name and leased back to the not-for-profit organization. As a result, the Branch believes that a
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This note was uploaded on 01/12/2012 for the course LAW 621 taught by Professor Arshada.ahmed during the Fall '11 term at UC Hastings.

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Ahmec-OCC-Interpretive-Ltr-re-Murabaha-10-7-11 -...

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