A CMHC report came out last week about Islamic financing in Canada. It suggested there are no serious legal or accounting hurdles to prevent Canadian lenders from offering Sharia-compliant mortgages.
Yet, few lenders seem willing (or able) to do so.
One big impediment is uncertainty about risk and return. Another, seems to be a lack of capital. True Islamic financing cannot be sourced from the money markets, where interest is paid to borrow money from investors. The Islamic faith holds that receiving or charging interest on loans is forbidden.
To get around the interest problem on individual mortgages, Shariah lenders become co-owners of a property and charge a marked-up “rent” instead. (Critics, not surprisingly, see this as simply masking the word “interest.”)
The more intriguing thing to us is how little Sharia-friendly money there is in Canada. RBS, one of the biggest banks in the world, offers Sharia financing in the UK, but there’s nothing similar in scale in Canada.
We spoke to UM Financial last year. While small, they're one of the better-known Sharia lenders in Canada. They told us they have a waiting list of 5,000 customers but cannot meet the demand. (Over 700,000 Muslims are estimated to live in Canada.)
It’s surprising that so few institutions and/or investors have entered the market thus far. 700,000 people is a decent-sized niche market. You’d think, with all the money in the Middle East, for example, that companies like UM Financial could find more capital.
For now, it looks like Muslim Canadians are resigned to waiting for someone to fill the void.
Sidebar: CMHC reportedly says it has no plans to insure Sharia mortgages.