that all God asks from us is to do the best we can with what we have. In a
few months we received an e-mail from a person who used to work with
Freddie Mac — Mr. Ahmad Elshal. He told us that he had visited our Web
site and that he liked it. He called to inquire about the details of what we do
at LARIBA. He asked one of the Freddie Mac executives at that time, Mr.
Saber Salam, to contact us. The rest is history. As stated earlier, LARIBA
received early approval from Freddie Mac, and we were elated. New prob-
lems erupted but they were much sweeter. Now, our problem was how to
organize ourselves to serve the growing demand.
Freddie Mac and Fannie Mae were originally organized as government-
sponsored public companies (GSEs, which stands for government-spon-
sored entities) by the U.S government to provide necessary liquidity to the
housing market in the United States. To accomplish this goal, Fannie Mae
and Freddie Mac provide the liquidity to the institutions that finance homes
(called mortgage companies) and banks, by authorizing the companies to
act on their behalf to finance homes according to universally set but strict
guidelines, and proceed to exchange the note for cash. The GSEs assemble
the notes in the form of asset-basedfixed income securities (bond-like)
called mortgage-backed securities, or MBSs. The GSEs offer these securities
for investment to institutions looking for high-quality asset-based bond-like
investments that yield a higher interest rate. This way, the GSE generates
cash to reinvest in mortgages.
In April 2001, LARIBA was the first ever RF finance operation in the
West to be approved for investing Freddie Mac’s money using the LARIBA
Shari’aa-based RF home finance model. In 2002, LARIBA became the only
U.S.-based Shari’aa-based RF finance company to be approved by the larg-
est mortgage investor in the world, Fannie Mae. Later, LARIBA became the
only RF finance company that issues—with Fannie Mae—RF MBSs.
It is also important to state for the record that LARIBA—and, for that
matter, any RF finance company or bank—is not allowed by Shari’aa to
borrow money with interest from Freddie Mac, Fannie Mae, and/or other
investors. Freddie Mac and Fannie Mae are looked upon as investors in the
RF LARIBA Shari’aa-based mortgages. In fact, we evaluate the financing of
each home as an investment and we offer it to Freddie or Fannie online as
investors in the LARIBA-financed homes. If approved, they indicate to us
the expected return they need to realize as investors. This is the rate we use
to measure the economic prudence of the investment (using the rate of re-
turn on investment based on the actual market rent, as explained earlier). If
approved, LARIBA forwards the money from its own funds to purchase the
house and is paid back within a week or less by Freddie Mac or Fannie Mae.
Freddie Mac and Fannie Mae were the real major source of capital for all
‘‘Islamic’’ finance companies in the United States. We were fortunate at
RF Banking Model for the 21st Century 273