Collective investments are helping Somali-Americans in Minneapolis to buy homes without ever visiting a bank, according to a Next City report.
Minneapolis, Minnesota is home to the largest number of Somali-Americans in a U.S. city – about 52,000. That dynamic helped the city produce the first-ever Somali-American U.S. Congresswoman, Ilhan Omar.
In 2017, there were around 74,000 people of Somalia descent in the state of Minnesota, according to census data.
A number of Somali-Americans have risen into the middle class over the last two decades since they started arriving in the U.S. in the early 1990s, driven out of the Horn of Africa by civil war.
But despite their wealth, they have a difficult time buying homes due to affordability and the predatory nature of some U.S. lenders.
Community leaders started exploring the potential of collective wealth through a mortgage financing vehicle known as Star Finance that was culturally appropriate and offering non-predatory mortgage options specifically for Somali immigrants.
“When I talked to community members, everybody was crying for solutions,” said Sheik-Abdi, a community leader in Minneapolis. “And I think the best way was to cut out the bank … do we really need the bank if we’re collectively investing and collectively creating wealth among all of us?”
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Minneapolis is experiencing a combination of rising home prices, low inventory, high cost of building new homes and high demand driven by fierce competition among Minneapolis residents to buy starter homes, according to a report by MinnPost.
Most Somali-Americans are Muslim. Paying and receiving interest – riba – is forbidden in Koranic law, which means they cannot acquire bank loans for mortgages.
Star Finance is modeled around recruiting 200 Somalis to each pool $2,500 to buy four homes in the city, then allowing prospective buyers to rent those houses to own. This is then scaled up as more funds are collected from more members.