Sharia-Compliant Financing in Canada

An article on the Globe and Mail’s Report on Business indicated that mainstream Canadian banks and regulatory bodies are beginning to seriously consider offering Muslim-friendly banking solutions. Sharia (in Layman) is the religious social doctrine and civic law that Muslims must adhere to.

For those of you who are unfamiliar with what the difference is between regular banking and Muslim banking, here is a brief explanation. (For the cross-referencing crowd, note that this is a very general explanation, I did not look up the exact official definition).

In Islamic law (much like fundamental Christianity), ‘usury’ is forbidden. Muslims are allowed to make money and profit from free trade of goods and services, but are prohibited from engaging in activities that ‘make money from money’. This means that dealing in interest-bearing financial instruments is a sin.

For example, a regular mortgage obtained to buy a house that has an interest component is forbidden. Business risk, in Islam, is to be shared by the lender and the borrower, and profits and losses must also be shared accordingly. In Western banking systems, risk is converted into a percentage, then charged to the borrower in the form of interest, and only if the borrower puts up collateral. This effectively transfers the risk completely onto the borrower, and is seen as an ‘unjust’ financial transaction, among other things.

Muslim-friendly banking modifies the contractual relationship between the lender (bank) and the borrower (perspective home owner) in such a way that the bank now will purchase the house, then ’sell’ the house to the borrower for the purchase price plus some ‘profit’. The lender may elect to receive the money for the house in installments or on a rent-to-own basis. The title/deed of the house is transferred to the borrower when payment is completed to the lender. This will constitute a normal purchase of ‘goods’ in the eyes of Sharia, and is therefore allowed.

The difference is philosophical at best. In reality, Muslim banks simply calculate the amount of interest they would otherwise be collecting, and add it as a lump sum on top of the purchase price of the house then call it ‘profit’ (or some other formula that leaves the bank with an equivalent financial benefit to that of charging interest).

This notion spurred the usual controversy in the comment section of the article (which can no longer be viewed if you visit the article’s page). Two camps of thought were prevalent among the Globe’s readers. One camp (where I pitched my tent) argued that providing these banking solutions is a pure business decision that banks are entitled to as long as Canadian laws and charters are respected and adhered to. Offering sharia-compliant banking solutions in Canadian banks is no different than offering ‘kosher’ or ‘halal’ food in Canadian supermarkets.

The other camp argued that since Muslims are inherently a bunch of violent terrorists who will kill all non-Muslim Canadians if they had the chance, offering Muslim-friendly banking solutions will surely lead to the ultimate hijacking of Canadian rights and freedoms by fundamental Islam, which will shortly after lead into the apocalypse of secular society.

The apocalyptic crowd was very convincing, even sighting verses from the Quran and sayings from the Muslim Prophet Mohammed.

Positions on the matter stood on an almost even split.

Where do you stand?