An example of recent action is the Treasury Department's announcement last February about a year-long joint investigation with the Iraqi government against an Islamic finance operation. Their mission: to track about 150 currency-exchange houses in Iraq known to be dealing with ISIS in Mosul. As a result of this process, the terror group's finances have been squeezed after much of its oil money was cut last year.
There were some instances of a complete shutdown of a bank, like Al-Aqsa Islamic Bank, due to accusations of funding terrorism. Instead, the U.S. government erred on the side of caution. "The approach of the Treasury Department has been increasingly to reach out to the banks in what has been described as the quiet diplomacy to ensure that the banks are not shut down," said Jonathan Schanzer, vice president of the Foundation for Defense of Democracies, who worked before as a counterterrorism analyst at the Treasury Department.
That being said, there are solid cases of Islamic banks that were designated as financing terrorism. The Palestinian group Hamas is classified as a terror group in the United States. Al-Aqsa Islamic Bank, used by the group, is on the Treasury Department's list of the financiers of terrorism. The same is true for several Iranian banks.
As the niche sector continues to go mainstream in America and big and small investors dip their toes in the world of Shariah-compliant financing, time will tell how the nascent market will evolve. "We are pioneers in the U.S. trying to get the word out," said Patrick Drum, research analyst and portfolio manager at Saturna Capital, an Islamic fund-management company in Bellingham, Washington.
He added, "Although we've been serving the community for decades, we're just starting to get noticed."
— By Riyadh Mohammed, special to CNBC.com
This story has been updated to reflect that University Bank offers Islamic financial services through its subsidiary University Islamic Financial.