With a gradual shift of opinion towards ethical finance more and more people in the west are recognizing Islamic finance as an emerging alternative to its conventional counterpart. While the professional class has acknowledged the benefits, the government is yet to take an accommodative stand. Canada with similar demographics to the UK has the nucleus for a burgeoning Islamic financial market. SYED SIDDIQ AHMED investigates.
Legal and regulatory: Currently there are no special regulations for Islamic financial transactions in the country, and they are governed under the prevailing conventional finance and banking laws. A limited number of institutions that offer Islamic financial products and services are provincially regulated and their provisions may not apply throughout Canada as a whole.
While assessing problems relating to various tax examinations of financial services, the Canadian Institute of Chartered Accountants (CICA) in December 2012 expressed in a letter to the Government of Canada, Department of Finance, stated that: The government is not responsive to the constant developments and innovation in the global financial sector such as the emergence of Islamic finance.
Business environment: There have been some moderate signs of support from a few provincial governments regarding Islamic finance initiatives. Assiniboine Credit Union (ACU) has introduced Islamic mortgages in Manitoba province which have been approved by a board of Islamic scholars from Winnipeg, Toronto and California. This product is based on a Musharakah Mutanaqisa (diminishing partnership) structure. The Toronto-based Islamic Finance Advisory Board (IFAB), an independent self-regulatory and a non-profit organization,provides Islamic financial consultation services. These include services such as advisory, education, mediation and arbitration.
Global growth Asset Inc offers the Global Iman Fund which is the first Shraiah compliant fund in Canada. Islamic cooperatives are increasingly becoming popular in many provinces of Canada and explored Islamic modes of transactions in the local communities. Ansar Co-operative Housing is one such example. Ansar Financial Group also offers auto, home and commercial Takaful coverage in Toronto jurisdiction. IjaraCanada provides solutions and Shariah compliant structuring for the purchase and refinance of homes from conventional financial institutions and brokers. DeGroote School of Business of McMaster University and University of Toronto’s Rotman School of Management offer Islamic finance as part of their MBA curriculums.
Numerous private firms and organizations at a provincial level are promoting Islamic finance actively through various seminars, conferences and awareness campaigns. Momin Saeed, the principal of one such firm — Roche Consulting Group’s Abrahamic Finance — provides educational and consultancy services in the Edmonton area of Alberta province. Momin is very optimistic about the growth of Islamic finance in the country but maintains that the Canadian Muslim community is poorly educated in Shariah compliant finance and a lot of effort and time needs to be spent on the overall growth of the industry in Canada. Professional organizations such as Chartered Professional Accountants Canada (CPAC) have recognized and voiced their support for the development of Islamic finance.
Opportunities: With a Muslim population of over one million which has almost doubled for the second consecutive decade in Canada, there is a strong potential for Islamic modes of finance to thrive. As of May 2013, Muslims accounted for 3.2% of the total Canadian population.
With increasing trade and cultural missions to the Middle East there is an opportunity for Islamic finance to proliferate in Canada. Owing to the nation’s rating many Middle East firms are looking to issue Sukuk through the provincial government-related organizations. Stakeholders can explore opportunities in real estate and bullion investments using Islamic modes. There is an opportunity for Islamic finance organizations such as AAIOFI to expand their reach and establish relationships with alliances of the leading professional accountancy bodies such as the Global Accounting Alliance (GAA) and International Federation of Accountants (IFAC). This will not only ease the access of Islamic finance into the Canadian financial space but will also increase its exposure to many professional bodies in major capital markets of the world.
Challenges: The Muslim population is scattered throughout Canada with many ethnic, racial and cultural affiliations. There will be a slight market challenge in conforming to their Shariah interpretations of Islamic finance. Lack of awareness and education among the Canadian population about Islamic finance may also hinder the growth of the industry. There might be stereotyping challenges as many local Canadians still have an adverse understanding of the word ‘Islam’ due to violent activities by a small section of Muslims.
Not every branch of a credit union may have the facility to offer Islamic products. For example, the Assiniboine Islamic mortgage is available only from its Pembina and Bairdmore branches in Manitoba province. Bigger challenges include the regulatory environment in Canada. Existing banking, technology and systems may not easily accommodate Islamic financing arrangements. The issuance of Sukuk and the adoption of Islamic finance structures may require careful study, reconciliation and adjustment to various Canadian laws such as the Bank Act, Financial Administration Act, Public Lands Act, etc.
Outlook: With the growth of numerous Islamic institutions and voluntary organizations and the surge in Muslim population both due to naturalization of immigrants and changes in religious preferences in recent years, the future of Islamic finance looks bright. Canada has a strong and robust rule of law. Notwithstanding the crucial role of the government, the business and financial community recognizes the value proposition of Islamic finance in Canada. Canada can take inspiration from the UK which despite being dominated by conventional finance, has accommodated and worked towards being one of the leading markets for Islamic finance in the world.