Starting an RF Bank in the United States: Acquiring and Restructuring a Troubled Bank and Operating It Riba-Free


This chapter covers the efforts we at LARIBA went through to acquire and operate a full-service national bank in the United States. This chapter is a must for anyone who may be interested in buying and operating a bank in America. It also can serve as a useful stepwise discussion that should benefit those who want to restructure a troubled bank and bring it to a healthy and a profitable condition. Finally, this chapter is important for those who are interested in operating a riba-based bank in America and the West in a riba- free (RF) format without having to go through the lengthy and expensive process of trying to obtain exceptions from the regulators, as was done by other Islamic banks in Europe. As was stated earlier in the book, RF banking is not about changing words and names of products and services, and it is not about using circumventive techniques to make the contracts look “compliant” with the Judeo-Christian-Islamic Shari'aa law.

RF banking is a new brand of banking that applies the spirit and substance of Judeo-Christian-Islamic values. It is about the use of principles that would save the consumer and the businesses from living an extravagant life style on “rented” money, from making an unwise purchase and financing decision and from participating in an economic bubble like that of 2008.

One of the options we considered in 1987 when TARIBA was started was to organize it in the form of a depository institution (meaning a bank). We reasoned that this option would offer us the ability to take deposits and to offer insurance on deposits through the Federal Deposit Insurance Corporation (FDIC). However, we knew nothing about the business of starting a bank in the United States. We were told by many of our friends that the process of starting or buying an existing bank (which is called the application for change of control of that bank) is difficult. Acquiring an existing back is an expensive, involved, and lengthy process. In addition, it requires the organizers to be well known to the banking regulators and the founding shareholders to have sufficient capital. As detailed earlier, we did not satisfy many of these prerequisites:

■ We did not have a lot of money to capitalize the bank.

■ We did not have a lot of money to spend on preorganization and preoperating expenses, such as legal, organizational, administration, and application fees and expenses.

■ We were not known to the regulators; we were offering a new brand of banking, which at the time was foreign to all people, including the banking regulators. For that matter, the RF banking and finance system was not only foreign to the banking regulators but also to Muslims and non-Muslims in general.

We simply did not know where to start. That was why we started by licensing LARIBA as a finance company regulated by the State of California Department of Corporations.

After operating LARIBA for almost three years and interacting with customers and users of our services, many of our customers and community members indicated that they would love to transfer their bank deposits to us, but they could not, because deposits at LARIBA are not insured, as are banks, by the FDIC. We told them that we at LARIBA could not accept deposits anyway because LARIBA is not a U.S. government-chartered depository institution; it would be illegal for us to accept deposits. However, this thought planted the seed of the idea of owning a full-service bank in the United States that would serve the community in an RF mode. The dream we had was to start or buy a small community bank that would eventually be operated according to the Judeo-Christian-Islamic Shari'aa law, while upholding the laws of the land.

Our strategic vision was to design the operation and services of this bank to serve people of all faiths, and not Muslims only. That is why, later on, when we developed the bank, its advertisements, its business development campaigns, the website, and the presentations we gave were all designed for people of all faiths. In our focus groups, people in the community were asked a simple question: “Would you prefer to go to a small, crowded Asian or Middle Eastern grocery store or to a large, clean, well-stocked and -organized supermarket that offers international foods?” The answer has always been the supermarket.

Another important strategic decision made was how to present our services. Many others that came to the market focused only on the Muslim community. We decided to focus on the U.S. market first, and hopefully the world. Calling something Islamic does not necessarily make it so. It is the way one conducts business, deals with people, and conducts his or her life that defines who that person and that institution are. Calling a model of financing by a “foreign” name like murabaha, musharakah, or mudharabah does not make it Islamic; what makes it Judeo-Christian- Islamic is the substance and spirit by which it offers unique and measured advantages over other conventional riba-based banking and finance models. In summary, we made sure that we do not “wear our religion on our sleeves.”


1. It applies the strict conventional U.S. banking regulatory and supervisory environment and practices enjoyed by U.S. banks to RF banking practices, products, and services. This adds more credibility to the RF banking approach and will make its products more reliable and acceptable in the market.

2. It creates a larger pool of bankers of all faiths, training, and experience who are well versed in both conventional riba banking and RF banking. This will bring a large pool of banking experience, expertise, and creative abilities to “manufacture” new products and services for the RF banking industry. It will also provide the emerging RF banking industry with RF bankers who can show the real difference by the mode of service they offer and be able to explain it well. This will help us achieve our long-term objective of creating the foundation for a new banking service and brand name, RF banking, that is offered nationwide.

3. It offers consumers the choice between conventional riba-based banking services and RF banking products and services. The consumer will enjoy the ability to choose from a wide variety of banking, financing, and saving products and services.

4. It encourages the members of the faith-based communities that believe in a riba/ribit-free lifestyle, including the American Muslim community, to participate fully in the U.S. economic system, integrate with it, and become important contributors to American life without violating their religious beliefs. This will have a great social impact on the growing American Muslim community and the American faith-based communities at large, and will encourage savings and entrepreneurship.

5. It creates an atmosphere of healthy competition between the riba- based conventional banking products and services and the RF banking products and services. This competition should be beneficial to the consumer and to both riba-based and RF banking systems.

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