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Courting Islamic finance

Advertisement The Canadian financial services industry is still a long way from meeting the specific demands of Canada’s growing Muslim population. But some Canadian firms are taking steps to address this potentially lucrative market. Although previous forays into Islamic investment products have failed, new efforts to develop other financial services for the Muslim population are showing promise. Islam-based financial products are consistent with Shariah principles, which govern all aspects of a Muslim person’s life. From a financial perspective, Shariah prohibits numerous conventional practices, such as the payment and acceptance of interest fees, speculative transactions, highly leveraged investing and investing in sectors such as alcohol, gambling and financial services. Financial services that satisfy these requirements already represent a US$1-trillion industry worldwide, with Moody’s Investors Service Inc. recently estimating that it could eventually reach US$5 trillion. “We have a growing Muslim community in Canada that is prominent and increasingly well heeled, and seems to be interested in adopting Islamic finance,” says Jeffrey Graham, a partner with the Toronto office of law firm Borden Ladner Gervais LLP, who heads the firm’s Islamic finance focus group. Indeed, the one million-strong Muslim population in Canada has roughly doubled in size over the past decade — and financial services firms are eager to tap into that market. A number of firms turned up at the inaugural conference of the Usury-Free Association of North America, an organization committed to promoting Islamic finance. Centennial College in Toronto launched a certification course on Islamic finance this spring. The first session of the course was filled to capacity with financial services industry employees. And representatives from several major financial services institutions — including three of the Big Five banks — are participating in an Islamic finance working group of the Toronto Financial Services Alliance, which is working to position Toronto as a North American hub for Islamic finance, among its other goals. “It is an untapped market that has huge potential,” says Omar Kalair, member of the working group and president of UM Finan-cial, a Toronto-based firm specializing in Islamic finance. Despite the widespread interest, however, efforts to promote Islamic finance face a variety of challenges, including regulatory and taxation uncertainties and a general lack of knowledge of the issues. Indeed, managed Shariah-compliant products in Canada have a dismal track record so far. In April, one of only two managers of Shariah-compliant equity mutual funds in Canada announced that it was terminating the only remaining fund in its lineup — frontierAlt Oasis Canada Fund. That fund, launched in early 2006, had assets under management of less than $900,000 at the end of 2009. In 2004, Toronto-based Royal Bank of Canada launched a Shariah-compliant equity-linked note that was later terminated due to a lack of market interest. And Toronto-based Dynamic Funds Ltd. terminated its Shariah-compliant Dynamic SAMI Fund in 2006. These failures have raised questions about whether enough demand exists to sustain a larger Islamic banking sector in Canada. But Kalair insists there is plenty of demand for Islamic banking products in Canada. In a survey of Muslim Canadians commissioned by UM Financial last year, about half of respondents said they would embrace Shariah-compliant financial products. 1 | 2 | NEXT PAGE >> Read other news from our News Section