capital needed and the avoidance of double taxation. That means that the
company’s profits are not taxed at the company level. The profit is distrib-
uted to the shareholders, and they paytaxes according to their own situa-
tion. The disadvantages were many, but we had to start from what was
possible to achieve what is impossible. The first disadvantage was that the
number of shareholders was limited to a small number (it was 35 members
when we started in 1987; as of 2009 it has expanded to 120 shareholders).
In addition, a Subchapter S company cannot solicit funds from the public
because that would require registration with the Securities and Exchange
Commission (SEC). We started LARIBA in 1987 with a small capital of
$200,000 which we had gathered from close, lifelong friends in the United
States. We had humble means, but our dreams and aspirations were
greater. We started a Web site (www.LARIBA.com) that became very
popular throughout the world. We financed cars, homes, and small busi-
nesses. It is true that we only did one or two financing deals per month,
but those deals helped us to start a balance sheet, an income-expense
statement, a financial ledger, and a successful track record for the com-
pany. The biggest challenge was the huge demand we received from the
community. We were heartbroken to say to prospective customers, ‘‘We
are sorry, but we do not have enough capital.’’ We asked our friends who
we knew could afford to participate butthey refused. They indicated that
they would be more comfortable if their funds were federally insured by
the FDIC, something that was impossible at the time. We used to finance
homes with a 40-percent down payment and a term of seven years. This
financing term could only be afforded by a few, who were mostly the be-
lieving affluent puritans.
It may prove useful to share with the reader the size of the problem of
raising the necessary capital by focusing on one aspect of the business, mort-
gage financing. If we wanted to finance only 50 homes a month at $200,000
each, that would require that we come up with $10 million a month or $120
million per year. Knowing the community, we did not have this kind of
money available. Some recommended that we contact the oil-rich countries.
We tried, but the competition had gone ahead of us, promising returns of
20–50 percent rather than the more realistic numbers we, as responsible
bankers and business people, projected with no guarantees. Of course, they
put tens of millions into the companies that promised high returns but not
into us. We decided to remain patient and never to compromise our stan-
dards and values.
Around the turn of the century, in 2000, demand for our services was so
large that we could not meet it because of the lack of capital. One of our
executives suggested that we close the company down because we could not
meet the demand. My reaction was simple. I told him, with tears in my eyes,
272 THE ART OF ISLAMIC BANKING AND FINANCE