Organizers of a planned bank in a Detroit suburb want to attract the area's Muslims with a product few banks would dare to offer - interest-free financing for homes.

Assuming it gains regulatory approval, Amana Bank plans to open in East Dearborn by December with an initial capitalization of up to $9 million. Soon after, Amana - which means "trust" in Arabic - plans to begin offering a mortgage-type product for Muslims, whose religion prohibits them from paying interest.

"There is a definite need for this," said Peter Smith, who is helping organize the bank and plans to be its president and chief executive officer. "Traditional financing in this country is so much different from their principles. We believe this will be a good niche."

The Detroit area has one of the largest Muslim populations in the United States, Mr. Smith said. Islamic law prohibits Muslims from earning and paying interest, which it views as inherently usurious. Devout Muslims therefore have had few options for buying a home, said Mr. Smith, a former regional president for $1.8 billion-asset D&N Bank of Hancock, Mich. Most rent apartments while saving to pay in cash - or violate religious principles by taking out a mortgage.

Amana has not yet designed an Islamic mortgage product, because its organizers, who include Muslim business owners, are still working to gain regulatory approval, Mr. Smith said. But some type of lease-to-own option is being considered, he said.

A program operated by Al-Manzil Islamic Financial Services, a New York-based division of United Bank of Kuwait, allows applicants to put a 20% down payment on a home while Al-Manzil purchases the remainder and leases the home to the "buyer."

Homebuyers in the company's program, which operates in New York, Connecticut, and California, then make monthly payments to Al-Manzil and agree to pay down the home's original purchase price over time.

Structuring such unconventional financing could pose a challenge for Amana because it probably could not sell the loans into the secondary market, as many banks do with mortgages, Mr. Smith said. Instead, Amana would probably hold the loans on its books, exposing itself to interest rate and default risks.

A Minneapolis initiative, however, could offer some help on that problem.

After taking part in an Islamic financing workshop held in Minneapolis in May, Fannie Mae's Minnesota office joined a new coalition of community groups and bankers to address the financing needs of the state's thousands of Muslims.

Fannie Mae said it believes the coalition's findings could lead to a Minnesota pilot program for Islamic mortgages. The Washington, D.C., headquarters of the government-sponsored enterprise is watching the Minnesota developments to consider what might be done nationwide, said Judy Majors, Fannie's senior business manager for multicultural markets.

"This is becoming a big issue that we need to address," said Colleen Fraley, deputy director of Fannie Mae's Minnesota partnership office. "Most Muslims that have bought a house have signed a mortgage in violation of their beliefs. They'd prefer an option that's compatible with their religion."

Amana also plans to offer conventional loans and to market its services to the non-Muslim community.

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