Home » As Ottawa Mulls Licences For Islamic-Focused Banks, Is Canada Falling Behind?

As Ottawa Mulls Licences For Islamic-Focused Banks, Is Canada Falling Behind?

News From : DagangHalal.com (17 Jun 2009)

As the Anglo-Saxon ex-masters of the financial universe struggle to emerge from a perfect storm of bad loans, bad bets and a deep recession, an alternative approach to business transactions is having a moment in the sun: Islamic finance, based on teachings from the Qur’an.

Some governments, including the United Kingdom and Japan, have begun trying to tap into money from the Middle East by floating debt as sukuk, or Shariah-compliant bonds. At the retail level, Islamic mortgages and other banking products – based on a no-interest equity-pool form of finance – are becoming more popular. Here in Canada, Standard & Poor’s recently set up a Shariah-compliant index that has already led to the proposed creation of the first Islamic ETF in this country.

But as the Islamic finance movement begins to get off the ground, a tug-of-war about how fast this new religious economy should emerge has broken out among those hoping to be players in this market.

The federal government declines to say how many applications it has received from organizations hoping to be the first Canadian institution to set up a licensed Islamic-focused bank in this country. But observers estimate there are about half a dozen applications sitting with the Department of Finance, and some of those asking for consideration are getting impatient with the time it has taken the government to come up with a yes or no.

Steve Watts, a partner with KPMG in Toronto, is involved with one of the applications. (KPMG is also handling another.) He says he’s worried Canada is falling behind other countries in its development of this sector. He points to London, which has decided to be proactive in developing that city as a “centre of excellence” in Islamic finance. “This is the next big shift in retail banking for the Muslim community. Looking to the future, this is going to be great for banks,” says Watts. “What are we waiting for? If this is being done in the rest of the Commonwealth, why can’t it be done here? Why can’t the laws of Canada accommodate this?” A conventional application usually takes up to 12 months; the Islamic applications have been sitting with the government for two to three years.

Watts points out that Islamic finance is one of the fastest-growing sectors in financial services. Authorities have done background checks around the applications; the backing of KPMG helps to ensure the commercial accounting on the applications is up to par. And anyway, despite what some critics argue, the products offered under the Islamic finance banner are not all that unconventional; the techniques used in Islamic finance are the same as or similar to some used at credit unions, in private equity and in venture capital.

Watts argues that the bureaucratic delays are leaving the sector under-regulated. “Mainstream Canadians are protected, but regulation is non-existent in this sector,” he says. “This is about taking something that is currently unregulated and bringing it into the mainstream. We want to show Canadians that they are represented under the regulatory system of Canada.”

Interestingly, the proposals were submitted for approval to the Office of the Superintendent of Financial Institutions, as is typical in such filings. But all the applications were subsequently punted to Finance. What might have held up the approval process? Only four years ago, the Ontario government found itself mired in a debate around accommodating Shariah-based law in provincial courts; the plan was eventually tossed out amid the populist backlash. The federal Conservatives might be hoping to avoid a similar kind of debate, especially given a minority in the House. As well, groups such as the Muslim Canadian Congress, the self-styled voice of moderate Muslims, has criticized the Islamic finance movement, calling it a con job by “Islamists, with backing from Middle Eastern financial institutions and their Western partners,” as one letter to the Canada Mortgage and Housing Corp. put it, intended to scare Muslims into paying more for financial services out of a sense of religious duty.

By Jeff Sanford
Source:Canadian Business Online


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