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But her savings were low, and she didn't want to borrow more money from family and friends. And because of her strict adherence to Islamic beliefs, there was no way she would take an interest-laden loan from a bank.

But now, thanks to a $25,000 loan from the city through an alternative financing program, she does not have to worry about violating her religion.

And because of the special loan, many richly colored dresses and fabrics were on display Wednesday at her store at the Karmel Mall on Pillsbury Avenue S.

"This is so wonderful," a joyous Gedi said to Minneapolis Mayor R.T. Rybak and other city officials Wednesday during a news conference to tout the initiative. "Thank you."

The city has created the Alternative Financing Program partly in response to Somali business owners who prefer not to borrow from banks for religious reasons. Muslims believe that receiving or paying interest on anything is against Islamic law. Some lending companies around the world have found ways to extend credit without violating that prohibition.

The city's alternative financing program -- in which Muslims can apply through the city and a partnering nonprofit group -- also is available for those who might not qualify for a bank loan.

Such financing is widely known as microlending, and it has been touted as a way to eradicate poverty in Third World countries. Last year's Nobel Peace Prize went to Muhhamad Yunus, founder of Grameen Bank, a pioneering microlender in Bangladesh.

Supporters say microlending, like Minneapolis' initiative, helps immigrants obtain the necessary money to start their own businesses. Mainstream banks often can't or won't directly lend to immigrants because they lack collateral, business experience or credit histories.

Starting a new business is risky enough. According to the Small Business Administration, one-third of new businesses ultimately fail.

The Minneapolis City Council last year approved the alternative lending strategy in which the city and private lenders offer loans up to $100,000 to retail, service or light-industry businesses.

The city will provide half of the loan at a 2-percent rate of return and the lender the other half of the financing at its own rate -- typically 10 percent -- said Bob Lind, director of business finance with the Community Planning and Economic Development Department.

The program was conceived after Hussein Samatar, director of the African Development Center in Minneapolis, told the city that many in his community needed more financing options.

Banks normally partner with nonprofits like the African Development Center to provide not only loans but also consulting services to immigrant entrepreneurs.

Samatar said Wednesday that his group has been helping Gedi with her accounting since she received her financing in February. She is expected to repay the money in monthly installments of $634 over the next four years.

He said the Minneapolis program is special because it focuses on such a specific cultural sensibility like Islam.

"I think it is very innovative," said Mary Mathews, president of the Northeast Entrepreneur Fund, a nonprofit group in Virginia, Minn., that specializes in microlending. "It's important to look at the capital needs of each group differently and respond to those needs."

Eric Thurman, a microlending expert and author of "A Billion Bootstraps," says the Minneapolis program is simply emulating lending policies commonly found in Islamic countries, in which interest is frequently called something else, such as a fee.

Samatar said that he hopes the Minneapolis program will be successful and that it will be a model other cities can adopt.

One bank is taking notice. Wells Fargo spokesman Peggy Gunn said the company is studying the program.

The city's Lind said at least three other small businesses have applied for financing through the program.

Terry Collins • 612-673-1790, [email protected] Thomas Lee • 612-673-7744, [email protected]

Source: Star Tribune, April 12, 2007