With the introduction of many Shariah compliant products, 2020 is to be considered a milestone year for Islamic finance in Canada, pandemic included. This includes solutions that enabled the Muslim community in Canada to finance their home, invest their savings and spend their money according to their beliefs. What is encouraging is that these products have been established by new players in the Canadian Islamic finance landscape.
Review of 2020
The first and unique mortgage financing product based on a Murabahah (cost-plus) contract in Canada was launched by Manzil, with full compliance with the AAOIFI Shariah standards and the Canadian legislation, and later a Musharakah contract was added to its mortgage financing offering. The former resembles an open fixed-rate mortgage and the latter an open variable rate. This expands the mortgage offerings available to Canadian Muslims which currently include Aya Financial and Ansar Financial, both of which use a version of a diminishing Musharakah contract.
To ensure its source of capital to finance its mortgage products is Halal, a mortgage fund was established by Manzil, backed by the underlying Murabahah and Musharakah mortgages, which represent the first Halal fixed income fund in Canada. These products are offered to individuals and institutions through well-established Canadian investment and crowdfunding platforms (CI Direct, FrontFundr and Fundscraper) which allowed them to add a Halal investment offering to their product shelves. Hence, CI Direct Investing, an online-based platform of the largest asset manager in Canada, offers the only diversified Halal portfolio in which the Manzil Halal Mortgage Fund constitutes the fixed income part and is complemented by Wahed’s FTSE USA Shariah ETF [exchange-traded fund] for the equity portion.
Early in the year, ShariaPortfolio started to offer its Halal investing solutions to individuals and institutions in Canada through its newly acquired Portfolio Management License. This gives Canadians the ability to access actively managed portfolios invested in Halal financial instruments. With the launch of its two US-based ETFs, SP Funds Dow Jones Global Sukuk ETF and SP Funds S&P 500 Shariah Industry Exclusions ETF, this became part of its passively managed mandate for Canadians should they seek it.
Most recently, a Halal Prepaid Visa card that acts as a Halal chequing account was introduced by Manzil in partnership with KOHO, a venture capital-backed fintech based in Toronto. This card provides the underbanked Muslim community a payment card with all bells and whistles, including cashback, without having to get into a non-Shariah compliant contract when opting for a credit card from a conventional bank.
Preview of 2021
The year to come has a bright outlook, even under the currently depressed economic outlook. Market players in Canada share a willingness to expand their offerings in order to not only capture more market share but to start to create this nascent industry into a real one. Manzil is expected to launch the very first equity-based Halal ETF on one of the Toronto stock exchanges (Toronto Stock Exchange or NEO Exchange). An added benefit to this offering would be its forex hedging in Canadian dollars to avoid the currency risk since most of the underlying securities would be US dollar-denominated.
Wahed is also expected to deploy its portfolio management offering to the Canadian marketplace which will strengthen the Halal investment offerings in Canada and make them benefit Canadians seeking Halal and ethical investing.
On the financing side, a national financial institution in partnership with Manzil will be offering the very first Halal car financing program based on a Murabahah contract. Lastly, Manzil is also working with another national financial institution to introduce Halal small and mid-sized business financing, another first, in addition to a full digital wealth management platform to attract and create an ecosystem for Muslim advisors and their clientele with the products and solutions that can allow for a fully Halal financial lifestyle.
Canada’s insurance marketplace does not currently offer any mainstream or sustainable Takaful-based insurance products; however, there are Canadian insurance companies gaining experience in Takaful products abroad as part of their mandate of sustainable insurance and we hope to see a structured Takaful company or product in Canada in the near future.
This Islamic finance ‘revival’ won’t stop here and will surely constitute a base that can act as a springboard for Canada to become the North American hub of Islamic finance following the UK’s path for Europe. Many Islamic finance institutions and fintechs start out with a long-term intention of establishing their presence in the Canadian market and many times it ends up as a short-lived stint. To give all these initiatives a safe and fair regulatory framework in which they can evolve, all levels of governments and regulators need to be involved. To that end, the National Council of Canadian Muslims and a prominent Islamic finance player are actively working on introducing this subject and its importance to the Canadian government in the hope that actionable steps can be initiated.