Islamic Financing in Canada: A Guide to Sharia-Compliant Options

Islamic financing in Canada offers a unique alternative to traditional banking methods.

In Canada, Islamic financing is governed by the Canadian Council of Imams and the Canadian Islamic Shari'a High Court, which ensure that all financial transactions adhere to Sharia law principles.

With a growing Muslim population in Canada, the demand for Sharia-compliant financial products has increased.

In response, many Canadian banks and financial institutions now offer Islamic financing options, including the Royal Bank of Canada and TD Bank.

In Canada, you can access various types of Islamic loans that cater to different needs and preferences.

Islamic mortgages in Canada come in three types: Murahaba, Musharaka, and Ijara. Murahaba is a deferred sale contract where the bank reveals the profit and cost of a property before transferring it to the borrower.

With Diminishing Musharaka, you and the bank become joint homeowners, with the bank transferring most shares to you upfront. As you make payments, your share increases until you own the property outright.

Ijara, on the other hand, involves the bank purchasing a property and renting it to you until you pay the full price.

For car financing, Islamic car loans in Canada are available through Ijara- and Murahaba-based contracts. You can choose a car and then approach an Islamic bank for financing, agreeing on a profit level that you'll pay in instalments.

Islamic car loans offer non-interest financing, environmental-friendly cars, and the option to include Takaful or auto insurance.

If you need to purchase a commodity on the spot but can't make payments, you can opt for a Murahaba sale contract with the bank. This is a good option for businesses that sell a lot of inventory on credit, such as through Tijarah.

Here are some key features of Islamic car loans:

For personal loans, Islamic Finance transactions in Canada involve contracts like Tawarruq, which involves the sale of a product on a deferred basis by the bank to the customer. This allows the customer to obtain cash by selling a commodity on a cash basis in the market or to a third party arranged by the bank.

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Alternatively, you can opt for a Murahaba contract, which is a deferred sale contract that allows you to get a loan in the form of a commodity.

Here are some key features of Islamic personal loans:

For businesses, Islamic business loans in Canada offer various options, including working capital finance through Istisna, Bai Salam, and Musawamah contracts. These contracts allow businesses to expand their operations and manage working capital issues with the involvement of Islamic banks.

For fixed assets and long-term business financing needs, businesses can use Diminishing Musharaka, Musharaka, and Ijara contracts.

Here are some key features of Islamic business loans:

Islamic financing in Canada offers a range of financial products that cater to the needs of Muslims. One such product is the Modaraba-based term deposits certificate, introduced by Aya Financial, which allows individuals to invest their money in permissible businesses while earning a fixed return.

Aya Financial's Modaraba-based term deposits certificate is based on a partnership between the individual and the bank, where the bank invests the individual's capital in permissible businesses. This product is similar to a Sukuks, which generate fixed returns.

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Some popular Islamic financial institutions in Canada offer a variety of financial products, including mortgages and term deposits. For example, IjaraCDC Canada offers an Ijarah-wa-Iqtina mortgage product, while Aya Financial and Zero Mortgage offer Diminishing Musharakah mortgage products.

Here's a comparison of some Islamic mortgage products in Canada:

These products offer a range of features, including funding from banks and credit unions, and certification from reputable sharia standards organizations.

Aya Financial Term Deposit offers a unique investment opportunity for Canadian Muslims. It's a type of Islamic financial product that allows you to earn fixed returns.

Aya Financial's Modaraba-based term deposits certificate is designed specifically for Canadian Muslims. This certificate is based on Modaraba, a financial concept that involves two parties: you and the bank. The bank invests in permissible businesses on your behalf.

You provide the bank with capital or finance, and the bank invests it in permissible businesses. If any profit occurs, the bank charges management fees from you. However, you must bear the loss if there is no blunder made by the bank.

The Aya Financial Term Deposit is a type of Sukuks, which are asset-backed fixed-income securities. Sukuks work like leasing an asset, where investors contribute to purchase an asset and then provide it to the company on lease (Ijara) and receive rental payments.

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Murabaha is a type of Islamic mortgage product that allows homebuyers to purchase a property without paying interest. It's a win-win for both the lender and the buyer.

In a Murabaha transaction, the lender buys the property and then sells it to the buyer at a higher price, which compensates for the absence of interest. This aligns with Islamic principles that prohibit usury.

Eqraz, a Canadian Islamic mortgage provider, offers Murabaha as one of its products, available in all provinces except Quebec. They use the AAOIFI (disputed) Sharia standards to ensure compliance with Islamic principles.

The markup amount can vary depending on the lender, but it's typically a percentage of the property's value. For example, if a property costs $300,000, the lender might sell it to you for $330,000, payable in instalments.

Here are some Canadian Islamic mortgage providers that offer Murabaha: