Rule change will allow Maine credit unions to offer Islamic-compliant financial products
Androscoggin Bank recently launched Maine's first mortgage product that complies with Islamic law regarding interest payments - but it likely won't be the last. Credit unions will soon be allowed to offer similar products, thanks to a regulatory change set to take effect this fall.
Islamic law prohibits charging or paying interest, viewing it as a form of financial exploitation. In Islamic banking, interest is often replaced by fees for specific services.
And instead of conventional mortgages, Islamic financial institutions have developed various ownership structures that allow the lender to make a profit without charging interest.
In July, Gov. Janet Mills signed a bill allowing credit unions in Maine to purchase property so that they can join banks in offering these alternative ownership structures to better serve the state's Muslim community.
Androscoggin Bank said it's already closed on multiple contracts through its new mortgage product, with about a dozen clients currently going through the approval and homebuying process.
The new law governing credit unions will go into effect on Oct. 5.