Islamic Banking and Finance in Canada: A Growing Trend

Islamic banking and finance in Canada is a growing trend, with a significant increase in the number of Islamic financial institutions and products available to consumers.

In Canada, Islamic banking and finance are governed by the Financial Consumer Agency of Canada (FCAC), which regulates and oversees the industry.

The first Islamic bank in Canada, Al-Rajhi Bank, was established in 2009 in Toronto, marking a significant milestone in the development of Islamic banking in the country.

Islamic banking and finance in Canada are based on the principles of Shariah law, which prohibits the collection and payment of interest.

Islamic banking and finance in Canada offer a range of financing and investment options that cater to both Muslims and non-Muslims alike. These options are designed to be Sharia-compliant, meaning they adhere to Islamic principles and avoid interest and other prohibited activities.

In Canada, you can find Islamic ways of investments and Halal Financing, which are not limited to Muslims. Anyone can obtain Sharia-compliant financial services. Aya Islamic Financial Term Deposit is a Modaraba-based term deposit certificate that generates fixed returns, similar to Sukuks.

Islamic Financial Institutions (IFIs) in Canada provide various investment products, including exchange-traded funds (ETFs), mutual funds, and mortgage funds. Some popular investment products include the Wealthsimple Shariah World Equity Index ETF, the Wahed FTSE USA Shariah ETF, and the Manzil Mortgage Fund.

You can also invest in a halal portfolio of stocks through a brokerage account or a third-party IFI, which will do a risk assessment before investment. The SP Funds S&P Sharia Industry Exclusions Exchange Traded Funds monitor sharia-compliant stocks for 200 companies of S&P 500.

Here are some popular Islamic Financial Institutions in Canada:

Islamic banking and finance in Canada offer unique loan options that cater to the needs of Muslims. Islamic personal loans in Canada are based on Halal Financing transactions, which do not allow increments in the monetary value of the loan, treating money only as a medium of exchange.

There are several types of Islamic loans available, including Tawarruq, which involves the sale of a product on a deferred basis by the bank to the customer, and Murahaba, a deferred sale contract.

You can opt for a fixed profit margin, non-interest transaction, real commodity transaction, or extra Wakala fee (agency cost) depending on your needs.

Here are some key features of Islamic personal and business loans:

You can get a car loan by approaching an Islamic Bank in Canada for financing. They offer Sharia-compliant principles through contracts of Ijara and Murahaba.

To get started, you'll need to find a car that meets your needs and budget, and then agree on a profit level with the Islamic Bank. This profit level will be the amount you pay in instalments in a deferred sale contract (Murahaba) or rental payments in Ijara (Islamic Financial leasing).

At the end of your payments or instalments, you'll become the owner of the car. This is a great option for Muslims in Canada who want to own a car without paying interest.

Here are some benefits of Islamic car loans:

Business loans are available in Canada for small and medium enterprises (SMEs) struggling with unsold inventory and working capital management issues.

You can opt for various options such as Murahaba sale contract, Tijarah, Istisna, Bai Salam, and Musawamah for working capital finances. These contracts allow you to sell a product on a deferred basis or sell inventory on credit.

With Islamic business loans, you can invest to expand your business and acquire loans to finance your venture in Canada. You can also get a commodity on spot and make payments later through a Murahaba sale contract with the bank.

The bank will take your inventory and sell it in the market with a minimal commission in a Tijarah contract. This helps you solve working capital issues without inflating the loan amount.

Here are some benefits of Islamic business loans:

For fixed assets and long-term business financing needs, you can use the Diminishing Musharaka, Musharaka, and Ijara contracts. These contracts allow you to share profit and losses with the Islamic Financial Institution (IFI) through Modaraba.

In Islamic banking and finance in Canada, one of the key differences from traditional banking is the absence of interest-bearing mortgages. This is a significant advantage for those who opt for Islamic banking.

No upfront payment is required in case of an Ijara mortgage, making it a more accessible option for some borrowers.

The relationship between the leaser and lessee, and buyer and seller, is based on a partnership model rather than the traditional borrower and lender relationship. This approach can lead to a more collaborative and equitable outcome.

One of the benefits of Islamic banking is that there's no change in the margin, which means that the interest rate remains stable.

The benchmark margin or profit is tied to the central bank policy rate, providing a clear and transparent reference point.

However, it's worth noting that higher contractual costs are associated with Islamic banking, which may be a drawback for some individuals.