Portland City Considers Implementing Interest-Free ‘Inclusive’ Business Loans to Comply with Islamic Law

The Portland Development Corporation (PDC), a division of the city’s Department of Housing and Economic Development that approves commercial loans, will consider a proposal this week to allow borrowers to apply for interest-free loans.

A July 12 memo to PDC board members from Nancy Martin, the city’s business programs manager, outlines the proposed “inclusive lending policies.”

“The city of Portland is increasingly diverse and has many business owners from
“They have international origins,” the note reads. “Their contributions to the local economy are numerous.”

In order to “increase financial access” to business owners “of international origin,” Martin wrote, the city would add an option to the PDC’s online loan application form that offers borrowers the option to pay a fixed administrative fee instead of interest.

In his note, Martin refers to Androscoggin Bank’s decision last August to offer interest-free mortgage plans to comply with Islamic law.

Under Islamic law, usury, or charging interest on loans, is a forbidden practice.

Charging a fixed monthly administrative fee would be “mechanically simple” and would allow the loan to be repaid the same amount over time as with interest, Martin said.

As an example, Martin wrote that a $100,000 loan at an 8% interest rate amortized over ten years would result in a total interest payment of about $45,594.

The same total interest amount could be paid as a flat rate of $379.95 over 120 months.

“Late fees could be added to loan terms to encourage borrowers to repay their loans.
“We have planned for payments on time,” Martin added.

The proposal is expected to be considered at the PDC board meeting this Thursday.