Jovian to Partner with UM Financial to Launch Shariah-Compliant Product May 27 2009
http://www.newswire.ca/en/releases/archive/May2009/27/c8320.html
http://www.globeinvestor.com/servlet/story/CNW.20090527.C8320/GIStory
http://www.canadianbusiness.com/markets/cnw/article.jsp?content=20090527
May 14, 2009
Jan 26th, 2009
Team Rice for Islamic Student Loans has won the online competition (www.rbc.com/innovator). They will make a formal presentation to RBC executives on March 5th 2009. An online form will soon be setup to quantify the demand from the community who will support an initiative from RBC where Islamic financial products can be offered to the community.
Jan 15th, 2009
UM Financial supports RBC Innovator Challenge for Interest-free Student Loans
Toronto – UM Financial supports RBC Innovator Challenge for Interest-free Student Loans. UM Financial encourages Canadians to vote online for Team 3’s submission of “Interest-free Student Loans” which is contending for the 5th place finalist spot.
For RBC to begin providing Interest-free student loans for Muslim students, A University of Waterloo Team from the Centre for Business Entrepreneurship and Technology was selected among close to 90 teams from schools across Canada. They need your votes to reach the finals. If they win, the team will be able to present the idea to RBC executives in March, thus increasing the chances of Interest-free student loans becoming available to students in the future.
In the 2007 Final Report “Task Force on Needs of Muslim Students”, the Canadian Federation of Students looked at the impact of interest based loans on Muslim students and recommended education related government loans should not accumulate interest, even after graduation. In a media interview, Jesse Greener the Ontario Chairperson for the Canadian Federation of Students reported that “Taking on interest-bearing debt conflicts with their beliefs”. In the final report, a student from the University of Toronto, stated that “Interest on OSAP loans is a problem for Muslims, causing many to take a reduced course load so they can work and try pay down their debt before interest accumulates”.
UM Financial President and CEO Omar Kalair said, "Most western countries such as US and the UK do not charge interest on student loans. Canadian students should not be given this added financial hardship and with usury looked upon negatively in all three Abrahimic religions, Muslim students in Canada face the added dilemma of having to pay an amount that goes against their belief. We encourage financial institutions and the government to look at solutions not only for Muslims but for all Canadian students who represent the future of this country to structure interest-free loans. At a time in history where government funds are being used for bailouts of industries and infrastructure spending, we should also be looking at investing in students.”
Majid Mirza, a member of Team 3 said “What amazed us the most is the overwhelming support we received from both the grassroots community, and prominent organizations. By speaking to UM Financial representatives we were able to attain clarity on how our ideas would fit into the real world. What really we need now is votes in order to bring this proposal one step closer to reality.”
Please take the next 30 seconds to vote for Team 3 in the link below – you are allowed to vote every 24 hours:
Vote Team 3
http://www.rbc.com/innovator/voting.html
Join the Support for Interest free Products in Canada on Facebook
http://www.facebook.com/home.php#/group.php?gid=43656094366
Muslims in Canada
The 1991 Census indicated 253,265 Muslims. By 2001, the Islamic community in Canada had grown to more than 579,000. Preliminary estimates for 2009 point to a figure close to 1 Million representing close to 3% of Canada’s population. The first recorded Islamic presence in Canada was the 1871 census which found 13 Muslims among the population. The first Canadian Mosque was constructed in Edmonton in 1938. The 2001 Census found 30% Muslims (123,725) Muslims were attending school and indicated Muslims median age was 28 years, well below the median of 37 for the overall population. Muslims formulate the largest annual immigration group entering Canada.
UM Financial
UM Financial is Canada’s premier Islamic Financial Institution. In 2004, UM secured a $120 million Shariah compliant investment facility from Credit Union Central of Ontario for the purpose of financing residential properties. In addition UM has developed investment and deposit products with financial institutions in Canada and currently operates an investment fund along with a real estate brokerage. UM has appeared as the only Canadian entry in the list of the Banker magazine Top 500 Islamic Financial Institutions and has been profiled on the front page of the business sections of the three leading newspaper in Canada (Globe and Mail, National Post and Toronto Star). UM is the Canadian representative on two of the largest Islamic Finance associations: Islamic Financial Services Board (IFSB) based in Malaysia and the Accounting & Auditing Organization for Islamic Financial Institutions (AAOIFI) based in Bahrain.
-30-
Media Contacts:
Omar Kalair
President & CEO UM Financial
416 424 4100 x114
www.UMFinancial.com
Abdul-Haq Ingar
Community Leader and Supporter
416 230 5229
Majid Mirza
Co-ordinator, Team Rice University of Waterloo
519 897 6057
About the Canadian Federation of Students
The Canadian Federation of Students was formed in 1981 to provide students with an effective and united voice, provincially and nationally. Students recognised that to be truly effective in representing their collective interests to the federal and provincial governments, it was vital to unite. Today, the Federation is comprised of over one-half million students from more than 80 university and college students' unions across Canada.
Final Report - Task Force on Needs of Muslim Students March 21 2007
Canadian Federation of Students www.cfs-fcee.ca www.noracism.ca Extracts from the study:
Financial Barriers
*Federal and Ontario student financial aid that is delivered through the Canada Student Loans Program and Ontario Student Assistance Program respectively should reduce reliance on a loan-based financial aid system.
*Education related government loans should not accumulate interest, even after graduation.
Frustration with high tuition fees and the predominantly loan-based government financial aid system was expressed at many of the Task Force hearings. For Muslim students, financial barriers are particularly difficult to overcome because their beliefs forbid them from taking on loans because of their religious aversion to usury, or interest.
In some cases, Muslim students facing financial hardship had to make difficult compromises between their religious beliefs and financial obligations by taking loans in the hope that they could be paid off before interest started to accumulate after graduation. Consequently, the heavy psychological impact of looming debt repayment was identified as having great significance for Muslim students. Some students reported that they tried to cope with their debt by enrolling in part-time studies.
“Interest on OSAP loans is a problem for Muslims causing many to take a reduced course load so they can work and try pay down their debt before interest accumulates,” University of Toronto, Scarborough campus student.
As identified in this Report, the Islamic faith opposes usury and involvement with interest-bearing loans. Yet the bulk of the Ontario Student Assistance Program (OSAP) consists of interest-bearing loans. Interest on the loans is paid by the federal and Ontario governments until six months after a student ceases to be a full-time student. Many Muslim students are therefore excluded from accessing OSAP as a financial aid mechanism. For part-time students, the problem is worse because neither level of government current interest relief or what limited financial aid is available to part-time students. This issue requires further investigation and action to ensure that all Ontarians have equal access to government programmes and services.
Recommendations
<!--[if !supportLists]-->· <!--[endif]-->Federal and Ontario student financial aid that is delivered through the Canada Student Loans Program and Ontario Student Assistance Program should reduce reliance on a loan-based financial aid system.
<!--[if !supportLists]-->· <!--[endif]-->Education related government loans should not accumulate interest, even after graduation.
Related Links:
Final Report by Canadian Federation of Student - Task Force on Needs of Muslim Students
TheStar.com | News | Muslim discrimination cited
Campuses Should Answer Unmet Needs of Muslim Students, ReportSays - Chronicle.com
http://www.reportonbusiness.com/servlet/story/RTGAM.20080129.wislamic0129/BNStory/robNews/home
Islamic banking study
TAVIA GRANT
Globe and Mail Update
January 29, 2008 at 7:14 PM EDT
A growing interest in Islamic banking has ignited a public debate on the concept, with one Muslim group calling on the Canada Mortgage and Housing Corp. Tuesday to abandon its study about the sector.
The letter comes as Ottawa is considering its first applications to start up Canadian banks operating within the strictures of Islamic religious law. Sharia-compliant products, such as mortgages and mutual funds, have sprouted up across the country in recent years and are gaining in popularity around the world.
CMHC said it merely wants to understand the issue better, and stressed that it has no plans to start offering such products itself.
Proponents of Islamic-compliant products say they simply expand the range of consumers' choices, in line with services being offered throughout the U.K., Asia and the U.S.
“Islamic finance are simply structured trade products devoid of usury, similar to ethical products which have filters,” commented Omar Kalair, chief executive officer of sharia-compliant mortgage firm UM Financial, on an online Globe and Mail forum Friday. “There is no injustice being forced on anyone.”
UM has said its mortgages cost about 0.60 percentage points more than a regular mortgage. Its homeowner mortgages tend to be structured like a rent-to-own system to avoid interest.
In Ottawa, meantime, decision-makers are mulling how to handle a banking trend that's worth hundreds of millions of dollars annually in the Islamic world and may be attractive to Canadian Muslims, known as the fastest growing immigrant population.
Canada's bank regulator, the Office of the Superintendent of Financial Institutions, is studying two proposals for banks that offer services in keeping with Islamic laws that forbid speculation and interest but are in favour of transactions where profit and loss is shared.
The federal Finance department established an Islamic financial services working group in June to study the issue. The 20-person group includes staff from OSFI, Canada Deposit Insurance Corp. and the Bank of Canada.
http://www.bankrate.com/bos/news/mortgages/Mar08_Shariah_mortgage_a1can.asp
Posted: March 27, 2008
Shariah mortgage
Canada's federal housing authority is set to award a $65,000 contract to study Islamic faith-based Shariah mortgages in Canada...
"We've received 10 responses to our RFP (request for proposals)," says Doug Stewart, vice-president of policy and planning for the Canada Mortgage and Housing Corporation, or CMHC, who said a decision was to be made by the end of the month.
.. Stewart maintains it is "part of our role to understand all aspects of the Canadian system, and Islamic mortgages are not an area we know a lot about."
Shariah-compliant mortgages currently form a small part of the Canadian market, but this could change as the Muslim population continues to increase. According to Statistics Canada, that population doubled between 1991 and 2001, from 253,000 to 579,600, representing two percent of Canadians. Projections are that the Muslim population could rise to almost 1 million by 2017, representing between four and five percent of Canadians. Along with this is rising interest in Shariah (religious law), including tenets governing finances.
The CMHC-financed study will look at how Shariah mortgages operate in various countries around the world and what the potential legal, regulatory and taxation/accounting impacts of implementing Shariah mortgage lending in Canada are. A final report is scheduled to be released by the end of May 2008 with a public report to come before the end of the year.
Stewart acknowledges that there have been objections to the study, but maintains "it is part of our mandate to provide information. We won't be entering into the debate of whether this (Shariah lending) is a good or a bad thing. We are looking at the legal and regulatory issues."
A question of usury
Under Islamic religious law, usury is forbidden while profit or fees tied to tangible goods are allowed. So far, Shariah-compliant mortgages in Canada have been made available through arrangements such as that offered by Co-operative Housing Corporation). The co-op buys the house and through purchasing shares and paying rent, the buyer gains full title to the property. If sold, any profits are shared between the co-op and the seller.
Buying peace of mind
When 33-year-old Omar Kalair purchased his first home five years ago in Mississauga, Ont., for $220,000, he paid cash. Although he was an economics business graduate from Sir Wilfrid Laurier university, Kalair wasn't that good at saving -- he came up with the purchase price with help from his parents and other family members.
Kalair didn't go for a mortgage, he says, because borrowing money with interest violates Islamic Shariah law. "People in our (Muslim) community who bought homes with typical bank mortgages had a guilty conscience," he says, "and many just did not purchase a home at all."
In 2003, Kalair founded UM Financial and to date, the company has financed 500 Shariah-compliant mortgages, largely through funds provided by Credit Union Central of Ontario, or CUCO, to several of its local affiliates including Metro Credit Union and McMaster Savings and Credit Union.
"They are investment partnership vehicles structured for us," Kalair says. "Instead of a lender we have a fund provider, and the borrower is a fund utilizer." Some of the obstacles in previous arrangements have been overcome with this model, Kalair says, in that the buyer gets title to the property as soon as it is purchased. "If the property is sold for a higher price, they make the profit unlike the cooperatives who took up to 10 percent of the gain."
Shariah-compliant mortgages do cost more (approximately half a percent more), but Kalair says it's worth it to observant Muslims who are "buying peace of mind." He adds the aim is to bring them in line with conventional rates.
New products on the horizon
Mohammad Fadel, an assistant law professor at University of Toronto, considers the different reactions to Islamic finance and Shariah-compliant mortgages within the Muslim community as just that -- legitimate differences in how the arrangements are viewed.
|
On the issue of whether conventional bank mortgage rates constitute usury, Fadel says "there are those who believe any interest rate, not just excessive interest, is sinful. Profit isn't prohibited under Shariah law, but there has to be involvement in a real activity, some sort of ownership of an asset."
Shariah mortgages may "be a little more expensive because of economies of scale," Fadel says, "but that doesn't make them sinister. I personally think the conflation between conventional finance and no-interest is a mistake. I have a conventional mortgage, and I feel no guilt."
The main thing, Fadel says, is to ensure that financial transactions, Shariah or conventional, comply with Canadian contract and banking law. That's where the CMHC study should make a contribution, as it looks at the regulatory framework governing mortgages.
In addition to CMHC's upcoming announcement on the Shariah mortgage study, Kalair says he is set to unveil a partnership with a major Canadian bank later this year. With what he says are 5,000 people on his waiting list, that may clear the backlog of Muslims wanting Shariah mortgages who are willing to pay a higher price for home ownership with a clear conscience.
Diana McLaren is a writer in Toronto. |
|
|
|
-- Posted: March 27, 2008 |
|
Credit union difference meets Muslim needs
By John Muggeridge
April 30 2008
<copy>
Omar Kalair knocked on a lot of doors trying to help Ontario’s Islamic community realize their dream of home ownership without compromising their faith’s rules against charging or paying interest on loans.
Then four years ago, he tried Credit Union Central of Ontario (CUCO), and discovered the power of the credit union difference.
Today, CUCO has provided up to $100 million to more than 350 new members of the credit union system in Ontario through UM Financial, an Islamic financial company based in Toronto.
“Credit unions were willing to take the risk,” says Kalair, UM founder and president. “They’re more community-focussed and willing to take that first step.”
A shariah-compliant mortgage charges no interest, but follows a rent-to-own agreement that has a very similar end result to a conventional mortgage.
With CUCO as financier, UM Financial buys the home but the purchaser’s name goes on the title to the property. The purchaser makes a down payment and pays a rental fee similar to a monthly mortgage payment.
UM Financial charges one-half to three-quarters of a percentage above the going mortgage rate to cover the costs of the arrangement.
Kalair says the potential market is substantial, with 5,000 Canadian Muslim clients prepared to transfer their current conventional mortgages, worth about $1 billion, to Shariah-compliant ones.
Bill Calder, CUCO director of credit risk management, agrees: “The credit union system is a collection of people that owns the operation themselves, and what better vehicle to put together a product that a specific community really wants?”
Ontariocreditunions.com
http://www.newhorizon-islamicbanking.com/index.cfm?section=features&action=view&id=10623
New Horizon Magazine April Issue
Point of View: Shari’ah and banking: compatible or unsuitable?
01 April, 2008
Baron Junaid Bhatti,
Ballencrieff House
A recently announced study by the Canadian federal mortgage insurer has reignited debate within the Muslim community and among Islamic finance specialists about whether the concept of Islamic banking is acceptable. NewHorizon’s contributing editor, Lawrence Freeborn, talks to industry experts to get the full picture.
Governments in the West are increasingly taking note of the growth of Islamic banking across the world. In the United States, the treasury has recently appointed an Islamic finance specialist, and an Islamic Finance Information Program at Harvard University has lately attracted media interest. In Britain, the government has recently announced its plans to consider the issuing of Islamic bonds, with the hope of attracting investment from the Middle East. Lloyds TSB, a huge high street bank, currently has 200 branches offering Shari’ah-compliant services in the UK.
This activity has encouraged a study into Islamic and other faith-based mortgages, to be conducted by the Canadian Mortgage and Housing Corporation (CMHC), a federal government body which provides mortgage insurance, and this has further stoked debate on the subject. The study aims to determine how much demand there might be for faith-based mortgages in Canada, as well as to consider side issues such as whether the lack of faith-based alternatives is potentially deterring people from entering the market. (This debate looks set to rumble on – a spokesman from the CMHC stressed that the research is not yet under way, and a report may not be produced until the end of this year.)
Potentially the return is a bit lower, but many people are prepared to pay a modest price to have a clear conscience about where their money is actually going. - Professor Rodney Wilson, Durham University
Dr Humayon Dar, a well-known economist, an expert on Shari’ah-compliant product structuring, and CEO of BMB Islamic (the Shari’ah advisory and structuring arm of BMB Group) agrees that the concept of ‘riba’ is confusing. The IIBI’s perspective is that the concept of ‘riba’, which comes from the Arabic root meaning ‘to increase’ or ‘to gain’, is much wider than its common translation as ‘usury’. Today, riba is generally understood to encompass all forms of interest, whether ‘reasonable’ or ‘exorbitant’. It is prohibited due to being exploitive and unproductive, as an effortless gain and unjust enrichment at the expense of others. Meanwhile, to some, it is largely a question of degree. Professor Rodney Wilson, of the School of Government and International Affairs at UK-based Durham University, explains the definition of ‘riba’ thus; ‘people in the Islamic finance movement do tend to interpret it as all interest, and I do myself because I think it’s very difficult to distinguish interest from usury. Usury is high interest, but how high is high? Do you have it at ten per cent or 15 per cent? Where do you draw the line?’
As a liberal Muslim myself, I know how much cynicism I face for being an advocate of Islamic banking from the conservative echelons of Muslim communities all over the world. - Dr Humayon Dar, BMB Islamic
Professor Wilson also draws attention to the point that high interest is not just an issue in Shari’ah-compliant banking. Conventional credit cards and loans in the West can often charge high interest, and ‘quite often the poor people borrow at very high rates because there’s no collateral to offer’. Meanwhile, Western consumers who build up unaffordable levels of debt can be seen as morally dubious too, for the same reason as highly charging banks, since they can be seen as ripping off the lender. With these kinds of caveats, it is clear that morality is hardly the ‘black versus white’ issue that critics of Shari’ah-compliant banking would make it out to be.In a recent statement, UM Group, a Canadian Islamic finance organisation, supports the CMHC’s move to consider faith-based mortgages, and compares Shari’ah-compliant banking to ethical finance. ‘Islamic finance is structured trade products devoid of usury, similar to ethical products which have filters,’ states the UM Group. ‘Islamic mortgages are equity partnership with payments coming in the form of profits.’ Professor Wilson agrees that ‘no Islamic bank, or indeed conven-tional bank which offers a Shari’ah-compliant service, charges interest. They use different financing techniques, and have different ways of rewarding their depositors.’
Professor Rodney Wilson,
Durham University
Professor Wilson goes further, explaining that, ‘potentially the return is a bit lower, but many people are prepared to pay a modest price to have a clear conscience about where their money is actually going’. This point hints at the reason why Islamic banking may be marginally more expensive than the conventional alternative in some cases. Shari’ah-compliant banks in the West face extra costs, such as the cost of compliance, and the cost of employing a Shari’ah board of scholars. Professor Wilson disagrees with the idea that scholars should be expected to work for banks for free, saying that ‘scholars who are sitting on these boards are doing a job, and can expect recompense’. Dr Dar, based on his experience of dealing with Shari’ah scholars, suggests that scholars’ fees have in any case decreased in recent times, particularly in Malaysia. It is also important to note that today’s Shari’ah scholars, who sit on Shari’ah advisory boards of financial institutions, are not only well-versed in Shari’ah, but also in operations of the conventional financial system.To Muslims, Islamic finance can perhaps best be compared to the fair-trade food move-ment, or indeed to buying a car. ‘If I buy an expensive car, obviously I’m buying the particular features of that car. I could get another car which is much cheaper, but I’m buying it because it’s the car I want,’ cites Wilson, ‘so it’s not just a question of competing on price, it’s also a question of the quality, the integrity of what’s provided.’ In a similar way, Shari’ah-compliant banking is an exercise in choice by the customer. ‘It does not come at the expense of other pro-ducts and nor does it compel any Canadian to purchase,’ according to the UM Group.
Dr Humayon Dar,
Al-Dar Islamic
However, a cursory look at the state of the industry in Britain suggests that it should not be taken as read that Islamic finance is more expensive that its conventional counterpart. Baron Junaid Bhatti, an expert in Islamic finance and head of Ballencrieff House, a consultancy firm for ethical and Islamic finance, suggests that this industry can indeed compete on price, but that it will not happen instantly. ‘Any new product in any new niche will always be expensive until you reach a certain critical mass, and then it starts dropping in price rapidly as different providers start to compete.’ So has the price dropped in Britain? ‘Absolutely. When you’ve only got one, it can pitch by saying that it is the only provider. However, when a few more pop up it can no longer do that. It has to start competing on service quality and price, just like everybody else.’ Baron Bhatti points to personal loans offered by the Islamic Bank of Britain, which have competed with conventional loans since 2004. ‘It’s a much more mature product. Now the rate you can get is, I believe, amongst the top ten cheapest providers in the UK.’
The idea that Shari’ah finance marginalises Muslims in the West is also strongly disagreed with. Omar Kalair, president and CEO of UM Financial, says: ‘We don't see Islamic financing ghettoising the Muslim community. There would be no reason to assume [that], when today we have banks in Detroit and Chicago which offer Islamic mortgages at par to the Muslim community through their branches’. Meanwhile, Professor Wilson thinks that Islamic banking can serve as a useful tool for integration. ‘It’s a way forward for young Muslims who are keen to see their faith applied,’ and it sends a positive signal ‘if they can aspire to work in a financial institution’. As far as the progressive cause for Muslims in the West is concerned, Professor Wilson finds it difficult to be unsympathetic to the “critiques”. ‘There are many other bodies in Canada that represent Muslim opinion, but not many that have this particular agenda, which is about separation of church and state. I’d not necessarily argue with the agenda, but I’d argue with the way it tries to forward it.’ Professor Wilson’s point is that, as one of the most progressive areas of Shari’ah law, the “critiques” would be better off embracing Islamic banking rather than bundling it with other, more inflammatory, issues which are unrelated. For instance by claiming that, as the “critiques” does, ‘Saudi-inspired’ Islamic banking legitimises a particular brand of extremism associated with the Wahhabi sect of Islam.
It is possible that Shari’ah-compliant banking has much more of an affinity with liberal rather than strident interpretations of the faith, as Dr Dar implies: ‘As a liberal Muslim myself, I know how much cynicism I face for being an advocate of Islamic banking from the conservative echelons of Muslim communities all over the world’. Likewise, Professor Wilson believes that this charge is unlikely to stand up to scrutiny, commenting that, ‘I think there’s some mischief making there’.
Partly for this reason, Baron Bhatti finds it hard to believe that the views of (critiques) will find much traction in the community of up to one million Canadian Muslims, with words that should encourage the industry in Canada. ‘I am certain that the vast majority of Muslims in Canada are keen to live their life in a halal manner, and this will include the way they conduct their business and financial affairs.'
http://www.cpifinancial.net/v2/Magazine.aspx?v=1&aid=1484&cat=IBF&in=29
Islamic Business & Finance Magazine
April 2008 Issue 29
|
CANADA |
|
|
|
Islamic financiers always get their man |
|
|
|
|
APR08 ISSUE29 |
|
|
|
John Foster explores the development of Islamic finance in Canada |
|
|
When one initially thinks of Canada, the images of the Rockies and Great Lakes, Mounties, maple leaves and moose spring to mind. The last thing that one would associate with Canada is Islamic finance.
However, in comparison to its southern neighbour, Canada is trying to develop its Islamic banking industry as a matter of policy, with state governments legislating for retail Islamic banking services and the government trying to develop a state Islamic banking facility.
While Canadian lakes, mountains and wilderness will draw plenty of tourists, something else about this country is deserving of genuine pride. Canada has accomplished a feat that is sadly rare in this world. It has blended the peoples of the globe into a more or less harmonious whole. It has a democratic society that balances a robust economy with an extensive social safety net and publicly funded healthcare. Not a bad century-and-a-half's work.
Unfortunately, that is the opposite of where matters appear to be headed in some parts of the world. With a population of 33 million, only 1.9 per cent is Muslim. However, Islam is the fastest-growing religion in Canada and people of Middle Eastern origin are one of the most rapidly-growing ethnic groups in the country.
On the retail level, Islamic banking is already in Canada. Islamic mortgages have been available for more than 25 years. The most progressive state, in terms of Islamic finance is Ontario. Part of this is down to the higher concentration of Muslims in this state than in the rest of the country.
The Financial Services Commission of Ontario has been regulating the Islamic Co-operative Housing Corporation since the 1980s, which has been offering Islamic mortgages across Canada. In addition, Royal Bank of Canada has developed a portfolio of Shari'ah linked notes for its private banking division and offered a similar retail investment product through its branches in 2004. The Co-operators Insurance company offers Takaful and Islamic mutual funds have been marketed in Canada for more than a decade.
That said, Islamic finance has had its problems in developing in Canada. The first problem is red tape, as banking rules on interest, real estate and capital adequacy ratios are making it difficult for Shari'ah compliant banks to be set up.
However, the ministry of finance is taking steps to try to address this and has organised a 20-man committee of 'the wise and the good' of the Canadian banking industry to look at how Islamic banking can be integrated into the mainstream conventional banking system.
"THE DEVELOPMENT OF THE INDUSTRY IS STEADY, BUT IT HAS HAD SOME HICCOUGHS ALONG THE WAY. A STUDY IN JANUARY BY THE CANADA MORTGAGE AND HOUSING CORPORATION INTO ISLAMIC BANKING IGNITED PROTEST FROM SOME SECTORS OF THE MUSLIM COMMUNITY."
This committee includes staff from Canada's banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), the Canada Deposit Insurance Corporation and the Bank of Canada. Concurrently, OFSI is studying two proposals for banks that offer services in keeping with Islamic law forbidding speculation and interest, but in favour of transactions where profit and loss is shared.
The government is trying to develop Islamic finance both at home and abroad, and one of its limbs is Export Development Canada (EDC), which under the direction of Jean-François Croft, chief representative for GCC and Yemen, has been touring the Middle East.
EDC first got its feet wet with respect to Islamic financing in 2006 through its support of SNC-Lavalin supply when it participated in the Dolphin Energy project in Qatar and the UAE. It acted as a lead arranger and provided $125 million on the conventional tranche, but also decided to take a $25 million sub-participation on the Islamic tranche, given the explosive growth of Canadian interest in the Gulf and the growing importance of Islamic financing in the region.
EDC realised, however, that it needed to take a more strategic approach to Islamic financing. Last year, the organisation commissioned a detailed review of Islamic financing, its structures and how it fitted within EDC's traditional methods of risk assessment and loan structuring. Coming out of this review was the development of a strategic approach to providing Islamic financing.
EDC recognised that it has certain limitations on what it could do, as it does not have its own Shari'ah board. As such, it partnered with local banks in the region that can provide Islamic solutions in support of Canadian procurements. EDC's approach will be to work both with specific banks in providing joint Islamic solutions to buyers of Canadian products as well as participate in Sukuk issued by companies that are, or will be, working with Canadian suppliers. For example, in 2006 it signed a co-operation agreement with a wing of the Islamic Development Bank (IDB) and is now talking with the IDB regarding the development of an Islamic financing facility
Islamic financing requires that a bank becomes a key player in the commercial contract and has a much closer relationship with the supplier than does conventional financing. As such, the EDC's strategy, and by proxy the Canadian government's, is to help Canadian companies understand Islamic financing and jointly offer Islamic solutions where required.
The development of the industry is steady, but it has had some hiccoughs along the way. A study in January by the Canada Mortgage and Housing Corporation (CMHC) into Islamic banking ignited protest from some sectors of the Muslim community. The
Despite the opposition, the CMHC was determined to press ahead and was supported by one of the Canadian Islamic banking sector's biggest personalities, Omar Kalair, president and chief executive of Toronto-based UM Financial, an Islamic mortgage company. Kalair described the MCC as, "an extremist secularist organisation," arguing that "they only have 200 members, but know how to grab the headlines. They do not represent the true Muslim community in Canada."
Kalair has led the charge in the development of an Islamic retail market in Canada. He founded UM Financial four years ago, offering interest free loans and since then has raised investments close to $200 million, with about $150 million in residential mortgage products. The company has eight branches in Ontario and 20 employees.
He explained that there were five big banks in Canada, which dominate the market. Kalair said that he has met with the senior management of all of these banks and explained the opportunities of Islamic finance to them. Last year, representatives of all of the big five banks attended one of the first Islamic finance conferences to be held in Canada.
He also said that interest has turned into practical action with active discussions going with three Canadian banks, developing a Shari'ah compliant home loan product at the moment. Kalair hopes to partner up with one of the big five and offer a comprehensive Islamic product suite, and in time make a joint application with his partner to create Canada's first full-service Islamic bank.
However, there is still a long way to go. There are regulatory hurdles to navigate, turf wars to settle and the Muslim population in Canada needs to be convinced of the benefits of Islamic banking. A number of investment products have come to market, but failed, as the Canadian Muslim population was not interested.
Kalair remains upbeat, he said, "In any community it is easier to give them money, rather than to take their money. In terms of market development, once 10,000 Muslims have bought Islamic mortgages and secured their homes, that is when you can start to create other products."
UM Financial supports CMHC study on Islamic Mortgages
Toronto – UM Financial has supported Canadian Mortgage and Housing Corporation (CMHC) $65,000 study on Islamic Mortgages and other faith mortgages. Islamically acceptable financing/mortgage is a product/commodity does not come at the expense of others products nor does it compel any Canadian to purchase.
In a letter to Karen Kinsley, CEO of the Canada Mortgage and Housing Corporation, the CEO of UM Financial Omar Kalair said, "Islamic mortgages are equity partnership with payments coming in the form of profits(rental). Islamic finance is structured trade products devoid of usury, similar to ethical products which have filters.”
A similar mortgage model is used by a Manitoba Credit Union serving the Mennonite community which abstains from usury. As people of different faith have options for buying meat when going to a grocery store between Islamic meat (halal), Jewish meat (kosher), organic fed (ethical), etc we as a company offer people who wish to have financing devoid of usury products available to them."
To the criticism the industry's proponents respond that the difference is there because Islamic law sees one, even if functionally it's hard to find it. "It's like the difference between a wife and a live-in girlfriend," says David Loundy, vice president of the Chicago-based Devon Bank, a Jewish-owned bank providing Islamic financial products through its branches. "They may serve some of the same functions, but there's a legal difference between the two, in terms of inheritance and taxes."
Kalair states “We have over 150 Muslim organizations in Canada who have worked with us in marketing Islamic finance. We have over 100 financial institutions that we have met to discuss Islamic finance products. We have been able to structure Shariah compliant financial products with Credit Union Central of Ontario, Metro Credit Union and McMaster Savings and Credit Union. All our products are within Canadian laws and required no changes in the law as we have communicated our products with Ministry of Finance, OSFI, OSC, FSCO and CMHC. Currently we have serviced close to 500 households however we have a current waiting list of 5,000 households.”
“Other governments have encouraged the development of Islamic Finance with the US Treasury Department appointment of a Scholar in residence for Islamic Finance, establishment of Islamic Finance Project at Harvard University, Dow Jones Islamic Market Indexes and Britain PM Gordon Brown speech at a London Islamic Finance conference wanting to “make Britain the global center for Islamic finance”. Today we have two US banks offering Islamic Financial products in Detroit and Chicago and LloydsTSB offering Islamic Financial products across 2000 branches in Britain.”
"We don't see Islamic financing ghettoizing the Muslim community. There would be no reason to assume when today we have banks in Detroit and Chicago offer Islamic mortgages at par to the Muslims community through its branches."
We urge the CMHC to proceed further with their study on Islamic mortgages which will be openly shared for all Canadians to analyze. Islamic mortgages have been operating in Canada for over 25 years.
A copy of the letter was sent to Jim Flaherty, Minister of Finance and Monte Solberg, Minister of Human Resources and Social Development who is responsible for the CMHC.
UM is a premier Canadian Islamic finance corporation. The company secured a $120 million facility from Credit Union Central of Ontario in 2004, which is used to finance Shariah compliant real estate residential properties in Canada. It has structured Shariah compliant banking deposit products with McMaster Savings and Credit Union. UM is the Canadian representative on two of the largest Islamic Finance associations: Islamic Financial Services Board (IFSB) based in Malaysia and Accounting & Auditing Organization for Islamic Financial Institutions (AAOIFI) based in Bahrain.
-30-
Media Contacts:
Omar Kalair
President & CEO UM Financial
416 424 4100 x114
Abdul-Haq Ingar
Community Leader and Supporter
416 230 5229
Critics state that Islamic mortgages are Saudi inspired?
Ironically Saudi Arabia does not have an Islamic mortgage system. Of all the countries with Islamic mortgages, Saudi Arabia is one of the least developed Islamic mortgage market. Review by Jeddah-based NCB, revealed the Saudi housing finance market is virtually nonexistent, mainly due to the lack of a detailed and explicit mortgage law governing property ownership, specifically property repossession, enforced eviction and asset liquidation in the case of delinquency.
Critics state Islamic or religious based products are new to Canada?
Islamic banking is already in Canada. Islamic mortgages have been in Canada for over 25 years. The Financial Services Commission of Ontario (FSCO) regulates Islamic Co-operative Housing Corporation Ltd since the 1980’s which has been offering Islamic mortgages across Canada. In addition RBC currently offers Shariah-Linked Notes in its private banking division and offered a similar retail investment product through its branches in 2004. The Cooperators Insurance offers Islamic Insurance and many Islamic Mutual funds have been sold across Canada since 1999.
Meritas Mutual Funds structures faith based funds for its Mennonite community. Faith based financial institution have been operating across Canada through various credit unions to those faith groups such as Mennonite Credit Union, Christian Credit Union, Catholic Credit Union, Khalsa Credit Union, etc.
Critics state zero interest paid on Deposits?
Deposits are treated as investment and a profit return is given which equates to the interest return since the underlying investment assets are Shariah compliant thus making the returns the same as conventional deposit returns. There are no zero interest deposit accounts in Canada nor are any planned. For more information on UM Investment products, please see press release below.
Critics list that Islamic mortgages are higher in price, approved by high-paid Shariah Boards, etc?
Islamic Finance products are another product just as Islamic meat (halal). The end product for Halal meat is the same, yet its cost is higher due to the blessing process and smaller market. It is also approved by independent Shariah scholars. When we have Islamic meat (halal) and Jewish meat (kosher) being sold for higher price approved by paid scholars there is no reason why Islamic financial product should not follow the same. Not all Muslims eat Halal meat nor do all Jews eat Kosher meat. Islamic mortgages are a product as is Islamic meat. Islamic mortgages are only for those who wish to avail the product. In the end it is an individual decision and we should leave the individual to make that decision.
Institution Links:
US and UK Media Links:
Canadian Media Links:
