Following a maelstrom of bad press last year after the breakdown of its flagship home financing business, Canada’s UM Financial Group is determined to move on. With a slew of projects waiting to get off the ground, the group is also focused on achieving its long-term goal of setting up a licensed, Shariah compliant – dubbed multi-cultural – bank in Canada.
In an exclusive interview with Islamic Finance news, Omar Kalair, UM Financial Group’s president and CEO, who has been at the forefront of the recent controversy surrounding the entity, outlined five main initiatives the group is currently pursuing. While some in the market remain wary of its efforts, it appears that it is still business as usual for the group as it strives to put the past behind it.
Elephant in the room
Despite keeping busy, the group’s name remains tied to the elephant in the room that encompasses the receivership of its now defunct unit, UM Capital Inc; sensationalist reports involving the use of gold and silver as payment to its Shariah board; and the role of Omar himself amid the disarray.
Omar maintains that all of the steps taken by the group during its troubled times were above board; and that the group remains on the right side of the law to proceed with its business.
“With most of our partners, we’ve educated them on the details regarding it and in the end; everyone agrees that we haven’t done anything wrong. There’s nothing against me, in terms of legal matters, or anything of that sort,” he said.
Although unable to provide specific details of its setback, which stemmed from the collapse of the group’s partnership with Central 1 Credit Union, the entity that extended a line of funding to finance UM Capital’s home mortgages, Omar commented that prior to UM Capital’s receivership, it worked with the credit union to avoid the closure of that funding line. “They did not agree to any of the proposals and going forward, we did not have any control of the process; so we left it in the hands of the courts,” he said.
The legal process eventually saw international business advisor Grant Thornton take control of UM Capital’s portfolio of mortgages under a receivership, and is managing their sale. Now, UM Financial Group is hoping to revive the financing contracts by finding a partner with whom it can bid on those mortgages.
“If a real estate property is for sale, anyone can put in a bid. We’re looking for a partner to put in an offer. Not to buy back directly, because UM Capital no longer exists. So whoever buys it is a new corporate entity; and if I’m connected to that, there are no issues from a legal perspective,” explains Omar.
Towards Canada’s first Islamic bank
Meanwhile, the group is proceeding with several initiatives that include the establishment of a Shariah compliant exchange traded fund to be listed on the Toronto Stock Exchange, six Sukuk issuances, the launch of a pre-paid credit card and ultimately, the establishment of a licensed Shariah compliant bank.
“The Canadian government has highlighted the need for an Islamic bank in the future. But our model won’t be called an Islamic bank; we’ll call it a multi-cultural bank,” said Omar, who noted that Islamic banks must be branded differently in Muslim minority countries to be successful. “We would have a neutral brand that is inclusive and open to all Canadians; and our multi-cultural (Shariah) board would be open to all scholars, such as from the Muslim and Christian communities. Our view is that we would design financial products to meet the needs of the different cultures in Canada,” he said.
With the option to set up its multi-cultural bank via a new banking license or the takeover of an existing entity, Omar said that UM Financial Group is exploring opportunities with the IDB for the bank to take up a minority stake in the planned bank. The group has also met with Canada’s regulators, who have outlined that the new bank must have strong shareholders that can meet a capital call should the need arise.
“There is one existing bank at the moment (in Canada) whose business model has failed. The regulatory environment is receptive for us to move in and acquire that bank; and we are looking for an institutional investor to partake in that initiative.
“We’re trying to set up the first multi-cultural bank in north America. Right now we (UM Financial Group) mimic a bank, offering financing, investments, capital market products and credit cards. Our long-term goal is to move this into a regulated bank environment,” said Omar.
Keeping busy
Of the group’s other initiatives, Omar said that it is working on six Sukuk involving sovereign and corporate entities in Canada. The group’s role in the transactions covers Shariah compliance, origination and distribution.
However, some of the deals have been on the burner for the last few years; and all remain at infancy stage due to the slow take-off of Sukuk in western markets.
“We’re still in a wait-and-see stage, but the view that we have is there is huge demand for ‘AAA’ Sukuk,” he said, adding that Sukuk could emerge in Canada as an asset class presenting an alternative to investments in US Treasuries.
The group is also providing advisory services for entities including a Malaysian pension fund looking to buy property in Canada; as well as preparing to roll out its iFreedomplus MasterCard, a pre-paid credit card targeted at the youth market. Set for launch this July, the group is aiming to capture 50,000 customers for the card in its first three years and is envisioned as the stepping stone for the group to launch other retail products.
However, despite the group’s full plate, Omar noted that challenges remain in terms of growing Islamic finance in Canada. “We’ve received support from Canadian banks, but we haven’t received any tangible support from international Islamic banks. The demand exists. We’re highlighting that international Islamic banks have to come to the table to support Islamic finance in Canada; and that there’s a strong business case to be made on the retail and wholesale side,” he said. — EB