Inside the Karmel Square shopping mall in southwest Minneapolis, women wearing headscarves paint customers’ feet with henna. Others sell beaded caftans in narrow stalls. On the first floor, shopkeepers kneel toward Mecca to pray.

Somali entrepreneurs in the neighborhood have transformed an abandoned machinery warehouse into this bustling indoor bazaar. Karmel Square is one of several commercial districts they’ve revived in recent years with support from an unexpected ally: the city.

Since 2006, Minneapolis has loaned more than $1 million to Muslim business owners through a program that complies with sharia law, which prohibits Muslims from paying or earning interest in a financial transaction. The program, which is operated in partnership with the African Development Center, makes Minneapolis the only city in the country to offer Islamic financing at a time when states are trying to ban sharia from the courts. “Minneapolis is a very welcoming city,” says Kristin Guild getbadcreditloan.com/payday-loans-il/sterling/, the city’s business development manager. “Because [Somali immigrants] wear headscarves, they are visible as entrepreneurs and people see that they are setting up businesses in our town and creating jobs.”

Minnesota is home to the country’s largest Somali community, which is predominantly Sunni Muslim. An estimated 32,000 people of Somali ancestry live in the state, and about one-third of them live in the Minneapolis-St. Paul metro area, according to the latest census figures.

In the past 10 years, North African immigrants have opened teashops, pharmacies, and child-care centers in southwest Minneapolis storefronts that were once boarded up. But many of these entrepreneurs struggled to grow their businesses because Islamic law forbids Muslims from earning or paying interest, known as riba. So they couldn’t take out loans or participate in the city’s low-interest financing program for small businesses.

This is how it works: A barber who needs new chairs for his shop goes to the African Development Center or another nonprofit lender that has partnered with the city

“We had to be creative to meet the demand,” says Nasibu Sareva, executive director of the nonprofit African Development Center, which brought the idea of creating an Islamic financing program to the city in early 2006. City leaders were unaware of the sharia restriction, but agreed to the plan. Less than a year later, the city’s community and economic development department launched the sharia-compliant Alternative Financing Program.

The lending partner buys the chairs, splitting the cost with the city, and then resells the chairs to the barber at a 2 percent profit. The barber pays it off in monthly installments. This is called a Murabaha sale.

The first person to participate in the city’s program was Shukri Gedi, a 50-year-old woman from the Somali capital of Mogadishu. Gedi had opened Global Clothing and Accessories in the Karmel Mall in 2004 with money from her relatives. She sold headscarves, caftans, and long black robes from her stall in the bazaar.

But when she needed money to import more products, Gedi refused to take out a traditional loan. “We feel it’s haram [forbidden], and that brings a lot of stress,” says Gedi, who learned about the riba-free financing through the African Development Center.

Gedi says the initial $20,000 loan and a subsequent $25,000 loan helped her keep her store open during the recession

Income from the business has helped put two sons through college, she says. “It feels good to be able to support them with school,” says Gedi, who has about $1,000 left to pay off on her loans.

Since launching the program, Minneapolis has made 64 loans worth a total of $1.2 million. It has also partnered with several other nonprofits in the area. Last year, one woman used $40,000 to renovate the building for a new child care center. Another woman who makes gourmet hot sauces got $40,000 for ent.

Islamic financing is a relatively new concept in the United States. Only a handful of banks and financial companies provide mortgages and loans that abide by sharia law. The Neighborhood Development Center in St. Paul created the first nonprofit model of riba-free financing in 2001 after Somali entrepreneurs voiced their concerns. It was immediately lambasted on right-wing radio. “They utterly missed the point, but I was a little bit nervous,” says Mihailo Temali, the center’s CEO. “We were the first in the nation.”

More recently, media coverage of a Minnesota homeownership program that provided Islamic financing options prompted then-Gov. Tim Pawlenty to shut it down.

Minneapolis business development staffers point out that their program is open to anyone, even non-Muslims. Immigrants from Morocco, Ethiopia, and other North African countries have brought commerce back to long-neglected neighborhoods, like Lake Street in Lyndale. Once a commercial corridor in the early 1900s, shops on Lake Street began closing as consumers moved to the suburbs.

With the help of the city’s program, more than 20 businesses are open again on Lake Street. “I think this will spread,” says Temali. “One of the most outstanding features of the United States is its long history of incorporating immigrants into the economy instead of excluding them.”