Confirmed: Islamic Banking in Canada

Tavia Grant of the Globe and Mail continues to report on the controversial subject of Sharia banking in Canada. I had previously discussed the concept in this blog, and have been an active contributor to discussions on the topic, prompting a kind acknowledgment from Tavia:

“I wrote the article that’s sparked this raging discussion on sharia-compliant products, just wanted to say your voice is much appreciated in those comments. This is an entirely new concept to many people, and they’re clearly worried. I’m glad you’re there and giving your perspective.”

It appears now that some banks have moved from the ‘thinking about it’ stage to the ‘let’s see what we can do to get it going’ stage. I say this based on the comments of Mr. Walied Soliman, a Lawyer with Ogilvy Renault who has been seconded to the CIBC legal team and the Ontario Securities Commission Enforcement branch. Tavia invited Walied to a Q&A, during which he alluded to the following:

Mr. Soliman ‘predicts’ that Islamic banking products will begin to roll-out into the Canadian retail market in 18 to 24 months (Retail market here refers to consumer banks like CIBC, RBC, TD, etc.). Products have already been available in Canada through mid-market providers. Given his inside knowledge, I would overlook the legal, non-committal jargon and say he pretty much knows.

A common question about Islamic finance has been the apparent indifference of consumers to the fact that, whichever way you slice it, the ‘premium’ they pay for the mortgage is essentially the amount they would have paid in interest, if not more. Since the whole point of the product is to avoid paying interest in order to conform to the ‘usury’ clause in the Quran, why then the big fuss? Soliman has the answer:

“That’s a really good question and one that Canadian trained lawyers and accountants really struggle with. Generally, we are a substance jurisdiction- which means that courts will generally interpret an arrangement based on the substance rather than the form of a transaction. In an Islamic Finance transaction, the form is at least as equal in importance as the substance of the transaction. Let’s be clear, the substance of an Islamic Finance transaction is critical but the form is given significant credit. Tax lawyers and accountants have an understanding of this concept, as Canada is generally a “form” jurisdiction for tax purposes.”

For more clarification on Sharia-Compliant banking, you can read the full interview on the Globe and Mail.