Islamic banking was initially intended to cater for the needs of Muslims. It has now been accepted to a large extent as an alternative to conventional banking. Its practices are now embraced by both Muslim and non-Muslim alike. In some countries Islamic finance has even moved from being a niche area of finance to mainstream finance.
But there are situations where the practice of Islamic finance, when specifically bearing the name ‘Islamic finance’, is not so well embraced. Secular states like Turkey make the use of the Islamic finance name difficult. Acceptance of the word by governments and societies where the Muslim community is a minority is not easy.
In this scenario, the practice of multicultural banking may be more appealing. This paper intends to examine the concept of multicultural banking and how it can be established without violating the principles of Shariah. Without bearing any Islamic name, the practice can still be bankable by the Muslims.
Islamic finance in Canada
The Toronto Stock Exchange (TSX) is the third largest stock exchange in North America and seventh largest in the world based on market capitalization and the world leader in mining sector listings.
In May 2009, Standard & Poor’s launched the S&P/TSX 60 Shariah Index (Index), which consists of 25 constituent member companies, minus the non-Shariah compliant companies. For example, interest-charging companies, such as certain large Canadian banks are not part of the Index while companies like Research in Motion, Canadian Oil Sands Trust and Barrick Gold are.
A sizeable chunk of the Canadian Islamic financial market is served by UM Financial. The company services close to US$120 million home financing portfolios provided by Canadian financial institutions through a Mudarabah facility. Most of the company’s growth is in its investment division UM Investment which launched the UM Real Estate Investment Fund. The company expects the fund to reach US$100 million. UM Realty provides real estate brokerage services for real estate properties bought across Canada.
Most if not all sovereign Sukuk to date involve the transfer of real estate by the sovereign to the special purpose vehicle or SPV that constitutes the Sukuk structure for a certain period of time, after which it is sold back to the sovereign. Such transfers are not always simple and involve taxation issues such as withholding taxes which need to be worked out. These are standard issues for any sovereign Sukuk but the good news is that a team is already working on them. Having a sovereign Sukuk in Canada would open the doors for many more structured Sukuk, such as corporate Sukuk, which could further enhance Toronto’s role as a hub for Islamic finance in North America.
Multicultural banking: The concept
The concept of multicultural banking is not new in Canada. Its practices can be found in many Canadian banks where multicultural banking divisions are set up with the task of bringing in new immigrants by offering retail-banking services to help their financial integration into Canada.
This offers the banks access to new deposits and allows immigrants a more convenient way to manage their financial needs like deposits, financing and other facilities including money transfers abroad, without violating their principles and values.
In some circumstances, other considerations will be given to attract certain target groups in society. Notwithstanding all the different features that it may have, the common feature being shared by this concept is that, it does not employ any term that can be associated with any particular ethnic group or religion, like Muslim, Chinese, Indian, Jewish and such.
The concept of the multicultural bank as envisaged in this proposal will have these basic features.
The bank would not be using any name that connotes direct affiliation to any particular ethnic group, religion or segment of Canadian society:
This is the unique feature of a multicultural bank. Instead of having a Shariah Supervisory Board, multicultural banking will have a Multicultural Supervisory Board that consists of representatives from various religions, like Judaism, Christianity, Hinduism and such.
Even though the target market is wide and encompassing for all Islamic banks, it will take a longer time for them to make inroads to non-Muslim communities. On the other hand, due to its universal appeal, the multicultural bank immediately holds a bigger target market as it caters for every ethnic group in society.
Since the multicultural bank does not employ any particular name nor is affiliated to any particular ethnic group or religion, its practice is more inclusive and receptive to the Canadian society.
Ethical filters and values
Since the multicultural bank is inclusive, it is anticipated that various ethical values and filters will also be upheld by the bank. This is not something new in Islamic finance. Having studied many of these ethical principles, one will simply appreciate it and realize that these ethical values are very Islamic.
Other multicultural clientele
Globally, multicultural banking is also not new and has in fact been practiced throughout the world:
Although Islamic finance may currently be the most prominent example of faith-based finance, other faiths have also been making inroads around the world. In early 2008, Dow Jones and Dharma Investments, a private Indian faith-based investment firm, announced the launch of the Dow Jones Dharma Indexes. The indexes measure the performance of companies that conform to the value systems and principles of Dharmic religions such as Hinduism and Buddhism .
Christian and Catholic finance
On the same day the creation of the Dow Jones Dharmic Indexes was announced, IW Financial, a provider of custom indexes, rolled out the IWF Catholic Values Index and the IWF Conservative Christian Values Index. Working on a similar model as the Dow Jones faith-based indexes, IW Financial used filters based on Christian and Catholic teachings. The indexes are available to exchange-traded funds, separate-managed accounts as well as advisors creating their own portfolios.
Currently, strictly observant Jews avoid placing their money because of prohibitions in Halakha (Jewish law). For instance, investment in corporate bonds are not allowed because charging interest on loans is forbidden, except when the company has been given special permission to do so. Investments are also avoided in companies that work on the Jewish Sabbath or sell non-kosher foods.
After five years of operations and serving members of different faiths, UM Financial concludes that while Islamic finance works in Muslim majority countries, the ideal setup for Muslim minority countries is a multicultural bank operation. The features and benefits of Islamic financial standards can be applied in a generic way to highlight the products to all society.
This would result in a bank being more open and inclusive than a dedicated Islamic finance bank. It is hoped that by having a multicultural bank, the principles of Shariah can be more appreciated and accepted by the multicultural society of Canada, even though the word Islam is not used.
Dr Aznan Hassan