News From : DagangHalal.com (17 Jun 2009)
And others in the Islamic finance sector suggest there is no rush to hand out a banking licence. Among them is Omar Kalair, the president and CEO of UM Financial Inc., a company that offers Islamic mortgages and is proposing a new Islamic ETF. UM Financial doesn’t have a banking licence. It offers its services through an agreement with an existing financial services company, Central 1 Credit Union, which provides capital to UM. That and partnerships with other companies allow it to offer a limited number of mortgages as well as a couple of other services, like insurance, and, more recently, a “prepaid” (interest free) Islamic credit card. But as one of the first movers in this space in Canada, Kalair would like to see more development of the market first, before a stand-alone bank is approved. “The market is not yet ready for this,” he says. “The fact that the big Canadian banks are not yet offering these services suggests that.” Kalair assumes the applications with Finance are mainly offshore Mideast groups hoping to set up shop here.
Nevertheless, the rest of the world is moving quickly. According to a report by Stikeman Elliott LLP, the sector has grown by between 20% and 30% a year since 2001. Watts wants to see Canada catch up to the U.K., which speeded the approval process in Islamic finance on the principle of “no obstacles, but no special favours.” That is, the government won’t stand in the way of the sector just because the word “Islamic” is attached. If the products fit into existing regulations, then banks will get a licence.
Watts calls this an enlightened, rational approach that meshes with western traditions of free markets and religious freedom. The idea that technically sound applications would be held up on any other concern would be to undermine western values. “The bureaucrats can’t have their heads in the sand on this. The applicants are making a business case here – nothing more,” says Watts. “They don’t want any special favours. They just want this considered.”
Those in the world of Islamic finance believe that now is the time to strike. One of the key developments in western finance leading to the current meltdown was the 25-year expansion in consumer credit. Deregulation, the rise of the offshore-shadow banking system, cultural attitudes toward debt – all led to a sharp rise in the amount of debt held by each individual. But as formerly non-creditworthy people were offered mortgages, demand in the economy was artificially expanded as well. That worked like a charm for a while – home prices skyrocketed, the auto industry continued to sell cars at a rapid pace, corporate earnings advanced – but once the credit bubble began to deflate, crisis quickly followed.
Proponents of Islamic finance argue that had its principles been followed, the big crash would have been avoided. Not only are profits from pornography and alcohol banned, but so too are unstable debt levels. That is an idea that may find favour with many in the West, especially in the wake of the recent meltdown. Watts suggests that even non-Muslim Canadians, recognizing the advantages, might at some point hope to access these services, just as some non-Muslim Canadians choose to eat halal. “You don’t have to be Muslim to enjoy the benefits. How many Canadians might want that – invest ethically in a system that isn’t debt-based?” asks Watts.
That possibility might soon be tested in the real world. The federal Department of Finance has confirmed that it recently finished its assessments and sent the applications back to OSFI for normal processing.
By Jeff Sanford
Source:Canadian Business Online