of all, land is not accepted as an asset in most commercial banking regimes,
because it is illiquid and nonproductive. The solution the RF bank manage-
ment uses to serve situations like this is to evaluate the fair market value of
the medical doctor’s business, based on its financial statements and operat-
ing history. We then devise an implied joint venture between the bank and
the doctor in which the medical doctor conceptually sells to the bank a
share in his business in lieu of the cash that would be made available to him
in a line-of-credit form. As discussed in Chapter 10, a lien is taken by the
bank on the business. When the doctor withdraws money, the bank be-
comes an implied share owner of a percentage of the business, and partici-
pates in its profit in the percentage indicated. When the doctor pays the
money back, the bank automatically(conceptually) sells the shares of
the business back. This process is structured as a dynamic process using the
LARIBA model and the mark-to-market principles discussed in Chapter 10.
Buying and Selling Loans When the new management team took over the
bank, we needed to aggressively add new loans to the bank’s loan portfolio
to increase income (as is done traditionally in riba-based conventional
banks). Some of our management team recommended that we call loan bro-
kers to buy loans from other banks and financial institutions. According to
the Judeo-Christian-Islamic value system and Shari’aa, buying and selling
paper debt and trading these ‘‘paper’’ instruments are not allowed for a
number of reasons, as discussed in Chapter 10. The most important of these
reasons is the fact that these loans were not constructed according to RF
financing requirements. The idea was discarded. The other practical reason
for management’s decision not to buy loans from brokers is that the broker
who will bring those loans (paper debt) will eventually try to ‘‘churn’’ them
(offering them within a period of approximately two years to another
bank), creating a speculative chain that does not create any benefit to the
customer (whom the bank never meets, because it is a brokered loan) nor to
the bank itself. The bank pays a commission to the broker who brings these
loans and ends up losing that money within two years, along with the loans.
Our credit policy spelled out very clearly the condition of not buying
debt, because of the RF bank’s implicit function as an investor—in a riba-
free way—with the customer, who should be known to the banker. Finally,
it must be stated that the bank bought RF MBSs that were ‘‘manufactured’’
by LARIBA according to the Fannie Mae standards (RF MBSs). This was, in
fact, not a purchase of debt but a practical and legal way, according to the
laws of the United States and Shari’aa to invest, as the mortgages that con-
stituted the RF-MBSs were produced by us at LARIBA, and every credit is
known to us in full detail. The payment experience of each of the RF home
mortgages in the RF/MBS was known to us in great detail because we were
346 THE ART OF ISLAMIC BANKING AND FINANCE