The US Shariah paradox: Turning incompatibility into viability

The US Shariah market presents a profound paradox: Immense opportunity but structural incompatibility.

While the conventional capital market is valued by the US Federal Reserve at the end of Q2 2025 at US$22.69 trillion for mutual funds and US$11.49 trillion for ETFs, the 27 Islamic funds within the US tracked by the IFN Investor Funds Database had a combined value of US$9.89 billion then.

As was seen by the November 2025 election of Zohran Mamdani as the first Muslim mayor for New York City, the US is firmly establishing itself as home to a sophisticated, affluent and rapidly growing Muslim population – for whom, the demand for ethical, faith-based financial products is strong.

However, the industry struggles to scale, constrained not by a lack of capital or consumer interest, but by a deeper, systemic dissonance within the foundation of the American economy.

Dr Main Alqudah, a member of the Resident Fatwa Committee of the Muslim Jurists Association of America, also president and co-founder of Guidance College in Houston, views the constraints as a "clash of worldviews".

"You cannot do risk-shifting and risk-sharing simultaneously … you have to make up your mind,” Dr Main shared with IFN Investor. "Because of this fundamental conflict, it's close to impossible to implement genuine, sound and authentic, 100% permissible Islamic finance within the non-Islamic finance system".

The core conflict: Risk-shifting versus risk-sharing

Dr Main identifies the most significant vulnerability in the US market as regulatory incompatibility, stemming from a fundamental difference in how risk is handled.

The US banking system is a capitalist model that operates almost exclusively on risk-shifting. Loans are the "exclusive and only mode of finance", where the principal and the return – Riba – are guaranteed to the lender.

Islamic finance, meanwhile, is founded on the principle of risk-sharing. Transactions must be asset-backed, requiring financiers to share in the potential for both profit and loss. A loan in this context is merely an act of "benevolence, a kind of... act of charity," given free of interest, Dr Main stressed.

The three-dimensional constraint

This regulatory hurdle is compounded by two other pressures, creating a "three dimensional issue", Dr Main noted.

The first, and most potent, practical hurdle lies in the secondary mortgage market, specifically enterprises like Freddie Mac and Fannie Mae.

Banks, by US law, "are not allowed to make money from real estate business." By structure, they lend money on interest. This makes it incredibly difficult for Islamic financial institutions to operate on the required principle of owning property first (risk-sharing) before leasing or selling it to the client.

Second, on the supply side, while conventional banks have vast capital, Muslim funders with private capital are often "so reluctant, so hesitant and so afraid" to pool money based on Musharakah. This hesitancy is due to the lack of a legal and regulatory framework that ensures their money "will be invested properly", causing many to be "just sitting back".

Third, the demand side suffers from a lack of awareness. Dr Main notes that "even basic information about Riba and interest in Islamic finance... not well known by the vast majority... of the Muslim community in the USA.”

The path forward: Turning theory to practice

Despite these systemic challenges, the US Shariah compliant market holds strength in its unwavering ethical commitment. Dr Main sees "huge progress" in community-led initiatives where Muslims are beginning to "put our resources together". Small companies are successfully attracting capital from the private market to invest in Shariah compliant ways.

This energy demonstrates a pivot from intellectual discussion to demonstrable proof, captured in Dr Main's guiding principle: to "take Islamic finance from theory to practice".

The path forward involves building parallel, robust and technologically innovative financial ecosystems that can operate legally and ethically, bypassing the conventional system where necessary. Educational initiatives, such as the North American Conference in Islamic Finance, aim to blend practitioners with researchers to provide practical models to "keep the Muslim dollars within".

The ultimate vision, stresses Dr Main, is not to disrupt the entire US banking system, but to establish a parallel, strong and entirely Shariah compliant mode of finance. By addressing the core issues of education, regulatory vacuum and limited supply through self-organization, the market is slowly building the confidence and infrastructure needed to realize its immense potential.