or to meet ‘‘loan production’’ quotas, particularly when it comes to custom-
ers who could not afford to pay the loans back. The fact that some loans
may be, for example, guaranteed by the U.S. government’s Small Business
Administration (SBA) or that the mortgage will be assumed by one of the
government-sponsored entities (GSEs, like Freddie Mac or Fannie Mae) does
not justify being ‘‘flexible’’ in applying the strict requirements of RF financ-
ing. The staff is trained to understand that we—as a dedicated RF bank—are
in business to help people succeed and to meet their commitments and obli-
gations. We also teach staff that digging a deeper hole of debt for our trusted
customers by giving them loans that they cannot service is not only improper
or illegal, but against the values by which we, as RF bankers, exist.
The Balance Sheet of the RF Bank
Before explaining how to run an RF bank in general, it is useful to familiar-
ize the reader with some of the accounting concepts used in banking. Any
company, and for that matter any bank, has to balance what it owns—its
assets—with what it owes—its liabilities. The difference between the assets
and liabilities is equal to the shareholders’ equity. The following is a
detailed description of the balance sheet of an RF bank, compared to that
of a riba-based conventional bank. It is important to note here that an RF
banker looks differently at various liabilities and deposit accounts and the
classification of the types of liquidity available to him/her. For example, the
shareholders’ capital is looked upon by the RF banker as the highest risk
capital, which should be—implicitly—used first in its financing operations.
On the other extreme, an RF banker views the demand deposit accounts
(DDAs) as those that must not be exposed to any risk, because they are con-
sidered a trust (Amana) to be kept as though it were in a safe deposit box.
General Concepts
Liabilities When a customer deposits money in the bank, this deposit is
called aliability, because the bank owes the money to the depositor when
he/she demands it. When a customer comes to a bank to invest in a time
certificate of deposit (TCD), that means that the bank owes that customer
this money and the profit (interest or the rent of money, in the case of riba-
operated conventional banks, and rent income derived from the rent of fa-
cilities in the case of RF banks) distributed by the bank.
Assets The bank is expected to invest the money that its depositors have
entrusted it with by, for example, financing the credit needs of customers
Operating an RF Bank in the United States 337