Canada: Clarifying The Status Of Islamic Home Finance In Canada

Article by Gar Knutson  and Jeffrey S. Graham 

This week the Canada Mortgage and Housing Corporation released a research report entitled “Islamic Housing Finance in Canada”. The report analyses Islamic housing finance in a sampling of countries throughout the world, including common law and civil law jurisdictions, in order to draw parallels with the Canadian legal system. The report then examines the development of Islamic finance in Canada and the potential legal and regulatory obstacles that arise.

The report first surveys the principles of Islamic finance and compares how Islamic finance compares with conventional finance. Next, the report considers the application of Shariah to mortgage lending internationally, noting that it is more state centric and less internationalized than other forms of Islamic finance and investment. It is noted that in recent years a number of companies have begun offering Shariah compliant home financing options in Canada and that the Canadian experience is not unique and that the experience of other countries applying Shariah principles to mortgage lending are illustrative of how the product develops. The report finds that in certain jurisdictions such as the UK and New Zealand governments have passed laws to facilitate Islamic housing financing while in others, notably the US, Australia and France, these finance instruments are being offered without significant legislative changes. Further it is noted that there are no significant differences among states with English common law systems, including the UK, the US and Australia, and states with civil law based legal systems, including France, Turkey and Lebanon.

The state of Islamic housing finance in Canada is surveyed. It is noted that the Shariah complaint mortgages were first offered in Canada by housing cooperative organizations. More recently, the market has been serviced by specialized lending institutions that have obtained funding from third parties such as conventional financial institutions and on-lent those funds by way of Islamic mortgages. It is noted that the interface of Shariah law with the Canadian legal system does not, in and of itself, create any particular issues and that Canadian real property law would continue to apply to the property that was the object of the transaction. Further, it is noted that there are no contract or other requirements that cannot be met using conventionally drafted legal instruments that are fully enforceable under the laws governing the contract, if such law is the law of a Canadian province. Depending on the structure, landlord-tenant laws may be implicated and certain of the rights of the parties determined in accordance with the requirements of that legal regime. In addition, the report discusses briefly the application of land transfer, commodity and capital gains taxation in the context of Islamic mortgages.

The report also considers the ability of banking organizations in Canada to provide Islamic housing finance. It concludes that most product offerings in the realm of housing finance would not be prohibited within the existing regulatory regime for Canadian chartered banks and other federally regulated financial institutions.

It is fair to say that there is growing interest in the topic of Islamic finance in Canada. With a prominent and growing Canadian Muslim community and strong and innovative financial sector, there is every reason to believe that Islamic finance will continue to grow in relative terms in Canada. Among the developments that can be anticipated, it should be noted that an Islamic Finance Working Group (IFWG) has been established by the Toronto Financial Services Alliance, a unique public-private partnership with a mandate to enhance and promote the competitiveness of Toronto as a premier international financial centre. The IFWG is considering the opportunities and challenges in helping to promote the development of Islamic finance in Canada. The report of the IFWG is expected to be released in the coming weeks.

Source : mondaq

Strategy for payroll race by Bank Islam Brunei Darussalam

As the race for payroll heats up among conventional banks, Bank Islam Brunei Darussalam (BIBD) is not sweating as it cobbles together a strategy it will launch next month, the Islamic bank’s top executive yesterday said.

Saved Ahmad, BIBD acting managing director, in an interview with The Brunei Times, said that “fundamentally we are not convinced that that’s what we want to go for (other banks’ lucky draw promotions), so don’t wait for something similar for us. We are hoping to have something different and of course it will be attractive.”

When asked whether BIBD is losing payrolls to conventional banks, Saved said that everyone reading the advertisements would know that they are only for the short term. lie believes that over the longer term, customers value longterm relationships and benefits they are going to get.

“There may be some customers who might actually be excited about the ongoing promotions out there, but I believe that our customers are far … smarter than that. With that said, it is actually a competitive environment and it is important for every bank to provide what they actually believe is the best in the end for their customer. We’ll see,” he added.

As for BIBD’s credit card line, Saved said that BIBD has a card which works overseas and locally but aren’t going to stop there. “We want to continuously improve our product and service proposition to make sure it is actually on par with international standards. I think overall, we look at financial services in a more holistic matter and purely to focus on credit cards as a tool to win all the customers’ financial requirement, in my view, is totally flawed.

Having said that, there are banks who generate all their revenue from credit retail so it is their livelihood,” Saved explained. Hjh Nurul Akmar Hj Jaafar, BIBD’s head of sales and distribution channel, said that at the moment, the bank is progressively looking at introducing new options and it’s in the pipeline. “Insyaallah, we will make sure that the proposition is at par with other international banks.”

Javed said that BIBD’s current offering is the cheapest credit card in the country. “If a customer saves seven per cent per annum, they are far far better off than even the lucky draws being offered. Being seven per cent cheaper is not even on a compounding basis, which makes us the cheapest card in Brunei, not to mention, we are the only bank in the country that has a cash back for amounts used or invested. We give customers a certain percentage back in terms of cash,” he said.

He cited that if a customer is having financial difficulty, on S10,000 used, he would be able to save $700 per year.

“I think that’s the main emphasis for us – points, how much points can you actually accumulate? Lucky draw winners, how many $10,000 winners can a bank offer? And is it on a monthly basis, yearly?” he added.

BIBD’s aim is to help customer save, said Hjh Nurul Akmar, adding that the bank is educating customers especially those who are tempted by promotions from conventional banks. “You need to look into the fine print where there are charges for interest at conventional banks. We ask customers if they really understand the terms and conditions behind this and we want them to make their decisions based on longterm benefits not these current promotions,” she said.

When asked whether there would be customers who jump between banks to get more chances of winning the lucky draws, Javed said that customers understand they are not all going to get the rewards and think that overall, there is a need to make sure it is inclusive not exclusive.

“The process of moving one’s salary is not easy and it costs. Clearance letters from banks are not cheap so what we worry most is not about the promotion, but the fear that our customers might fall into much deeper debt. That is our biggest fear,” said Hjh Nurul Akmar.

Javed said BIBD is the first bank to scrap the concept of a balance certificate and letters of transfers since more than a year ago. “If a particular customer is unhappy with the bank’s service, they are going to be even more unhappy if they have to pay a large sum to move his or her account to another. So, we were the first one to say that this is totally unfair to customers and we got away with it,” Javed said.

source : The Brunei Times