Thursday, June 01, 2006

Captive market analogy

More evidence has surface to show that minorities are being charged higher mortgage interest rates than their white counterparts with similar credit ratings and incomes. This is the proper analogy -- in my opinion -- to Islamic finance, where Muslim customers who are forced t deal with "Islamic financial providers" are obliged to pay higher interest rates. Part of the premium is caused by genuine (albeit spurious) transcation costs due to additional trades, SPVs, legal fees, "scholar" fees, etc. The rest of the premium (which may or may not exist in the short term, while providers are seeking to build reputation and market share) is the rent-seeking incentive that brings most providers into that industry. If "Islamic finance" providers can extend credit to those minority borrowers at lower rates than they are currently charged, there may be a mixed blessing in the whole charade.


Blogger Islamic Law, Etc. said...

I would highly doubt if they would pay anything else, being muslim and minority would only double the costs, adding inslut to injury, esp. since the Islamic mortgage co.s use the same industry standards for determining thier interest rates as the conventional mortage companies do.

2:31 AM  

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