OH OH here we go...
Sharia-compliant finance is increasingly popular
TAVIA GRANT
From Monday's Globe and Mail
reportonbusiness.com
May 7, 2007 at 3:23 AM EDT
It's an unlikely image: staffers at the Office of the Superintendent of Financial Institutions - surely one of Ottawa's driest regimes - are busy brushing up on the fine points of sharia law these days to cope with the anticipated expansion of Islamic financial services in Canada.
"Lately we have had more expressions of interest," said Normand Bergevin, managing director at OSFI's approvals and precedents division.
Several people on his staff are learning about business plans, legal structures, accounting methods, types of governance and other issues related to Islamic finance.
"It's fairly new to us," he said. "There's not a whole lot of experience here in terms of supervising or even understanding the different types of products. They all have little twists on them that make them very unlike anything we've ever seen before."
They're likely to see a lot more. Islamic finance is becoming one of the hottest areas in banking and insurance in the world as the Muslim population grows and wealth increases.
Sharia-compliant products must meet three criteria: no explicit interest is paid; the transactions can't be in such areas such as gambling, alcohol, pork or pornography; and the transaction can't be deemed as a gambling contract, or one that assumes a high level of risk. Products tend to be for both Muslims and non-Muslims alike.
Assets in the sector have hit more than $250-billion (U.S.) worldwide while the number of Islamic financial institutions has jumped to more than 300 from just one in 1975, the British Treasury estimates.
It's prompted global financial companies such as Citibank NA, HSBC Holdings PLC, Barclays PLC and American International Group Inc. to start offering Islamic financing products. Governments are getting interested too: Britain said last month it's looking into issuing sharia-compliant bonds as London aims to become the world centre for Islamic finance.
Canada is part of the wave. Several Canadian financial institutions are preparing sharia-compliant mortgages, insurance, taxi licensing and investment funds to help serve the country's fastest-growing part of the population. Foreign institutional investors are also keen on entering the Canadian market.
"I expect it to grow exponentially in Canada in the next couple of years," said Walied Soliman, a lawyer at Ogilvy Renault LLP, who says it's become a priority practice area for his firm. "It's quite unbelievable how it is growing."
Most big Canadian institutions are treading carefully and not all are jumping on board - Royal Bank of Canada quietly tested a sharia finance product a few years ago but didn't find enough market interest. The bank has no plans to implement a sharia product at the moment.
Yet plenty is percolating below the surface as businesses reach out to a growing immigrant population.
"A number of the major banks in Canada are looking at it," said Mr. Soliman, who predicts a large Canadian bank will announce a sharia product within the next 18 months.
His firm's been working with a major Canadian institution to establish a suitable private equity fund, and is helping create a registered education savings plan that's sharia-compliant.
As worldwide demand for Islamic banking and insurance products explodes - it now exists in 75 countries - big Canadian law firms are jockeying for position in the area.
Stikeman Elliott LLP lawyer Stuart Carruthers sent a newsletter to clients last month, telling them demand for this type of product "no doubt" will grow.
"We see this coming down the pipeline," he said.
Co-operators Group Ltd. has gotten the ball rolling. Canada's third-largest home insurer has developed a form of insurance - called takaful - which it will begin offering in a Muslim housing co-operative by this summer.
Pervez Nasim, chairman of the Islamic Co-operative Housing Corporation Ltd., says he's seen demand for sharia-compliant mortgages "surge" in the last three years.
Credit unions, such as the McMaster Savings and Credit Union in Hamilton, are starting to offer sharia-compliant mortgages, which tend to be structured like a rent-to-own system to avoid interest.
Islamic finance quick facts
What is Sharia law?
Under Sharia law, making money from money, such as charging interest, is usury and therefore not permitted.
Wealth should be generated only through legitimate trade and investment in assets.
Investment in companies involved with alcohol, gambling, tobacco and pornography is strictly off limits.
How does Islamic finance work?
The overarching principle of Islamic finance is that all forms of interest are forbidden. The Islamic financial model works on the basis of risk sharing.
The customer and the bank share the risk of any investment on agreed terms, and divide any profits between them.
Why is interest forbidden
in Islam?
During the time of the Prophet Mohammed, many people made gains by lending money at extortionate rates. As a result, the payment of interest was forbidden because it was unjust. Islam teaches that money must be used in a useful way. You can't make money from money. You can generate wealth through legitimate trade in goods and items, but you must share the risks and rewards.
Canadian Muslim
population
1991: 253,300
2001: 579,600
2007 (estimated): 750,000
to one million
Source: Statistics Canada, Ogilvy Renault LLP, Lloyds TSB, International Islamic banking, finance & insurance conference |
