Pervez Nasim- Chairman of Ansar Financial Group, Canada

For the average Muslim, buying a home can be a burden, especially with no recourse to Shari’a compliant financing and reliance on interest-bearing debt. Toronto-based Ansar Financial Group were one of the first organisations in the Western world to tackle this issue, providing a cooperative model that met the Muslim consumer’s needs. Pervez Nasim, the unassuming Chairman of Ansar Financial Group, was one of the founders of the organisation in 1980. He speaks to us about its beginnings, growth and expansion and gives us an insight into a model that is garnering global appeal.

 

For the average Muslim, buying a home can be a burden, especially with no recourse to Shari’a-compliant

financing and reliance on interest-bearing debt. Toronto-based Ansar Financial Group were one of the first organisations in the Western

world to tackle this issue, providing a cooperative model that met the Muslim consumer’s needs. Pervez Nasim, the unassuming Chairman of Ansar Financial Group, was one of the founders of the organisation in 1980. He speaks to us about its beginnings, its growth and expansion and gives us an insight into a model that is garnering global appeal.

How did Islamic and Ansar Cooperative Housing Corporations begin?

The story of Ansar is really a story of a

Muslim immigrant. Original immigrants first helped themselves and now they are helping new immigrants; just like the Ansar

of Medinah. I, along with many others, came to Canada in 1970 in order to receive a good education. Originally, we had no intention to stay and wished to return back to our home country. But a number of factors conspired to keep us in Canada ranging from setting up a family, the flourishing of our respective careers and even the political and economic turmoil in our home countries. I came from India; I have been in Canada for 42 years; I got married in 1973; now I have three children. Canada is my home and it is the home of my children. But in those early days, as immigrants from an alien culture with a different way of thinking, settling in and creating that home away from home was always going to be a difficult task. The younger generation will probably never experience or even truly appreciate those initial struggles of somehow maintaining our religion and cultural heritage. It was something most of us felt passionate about and it was the selfless endeavours of the first generation which brought the mosques and the halal butchers onto Western

soil. I would not say finance was ignored, but it was not given the same level of consideration. In most Western

countries, halal butchers are ubiquitous in predominantly Muslim communities. The same cannot be said about Islamic financial institutions. It has only been recently that they have been established. As someone who worked for Canada’s

Ministry of Finance since the early 70s, this was an issue that was close to my heart. Necessity forced the first generation to find a solution.

Just as with worship and food, we wished to uphold our religious values in transactions too. There are approximately 2 million Muslims in Canada and half a million in Toronto. This is a very big market and so there should be a good offering of Shari’a-compliant products. As interest is considered prohibited, there were two basic needs which were not being fulfilled for the Muslims:

 a) ensuring savings did not lose value due to inflation; and

 b) acquiring houses With this in mind, a group of us decided to start “Islamic Cooperative Housing Cooperation” in 1980 in order to fulfil these basic needs and avoid interest.

It was the first Islamic finance institution in North America.

What were the challenges you faced at the beginning?

As with any new venture, especially one that was as unique and religiously based, there were a number of challenges. One of the biggest challenges was complying with three sets of law: 1) Shari’a law 2) the law on cooperatives, 3) taxation (tax efficiency). We had to offer products which would balance all three aspects and not go beyond the limitations it imposed.

So in the beginning, we were really undertaking a trial-and-error process, seeing what works and what did not. The Shari’a authenticity of our products was a little weak at the beginning. For example, Mufti Taqi Usmani was concerned about the wording for the documentation of our products and the mandatory nature of property insurance, which housing associations such as ourselves needed to have. Mufti Taqi Usmani advised that we should have only 3rd party liability insurance mandatory, so that if someone is injured outside a property of ours, then we would be covered. Under the Shari’a principle of darura, this would be considered acceptable.

In terms of taxation, a homeowner can get tax-free capital gains if it is their principal

residence. In our case, since the

legal titles of the houses are registered in the name of the cooperative, as it is required under the Co-operative Act, we had to prepare an ‘Occupancy Agreement’ for each house in such a way that it would maintain the tax-free capital gain.

Aside from the structural elements, there was the task of advertising and promoting our community. In the beginning, while community members wanted Islamic finance, they had apprehensions as to whether it would succeed. We did not have the political clout or a firm presence to bring legislative changes in order to efficiently run an Islamic financial institution freely in a Western country. People were very sceptical about its viability. Therefore, generating confidence proved a slight challenge at first, but once they saw the structures in place and the Shari’a authenticity, confidence grew and we began to gain more members.

Another significant challenge, one that faces all new organisations, is funding. The early 80s saw a sudden influx of refugees and new immigrants that demanded our products and that put pressure on us to deliver. We only used members’ funding and so getting more funds was difficult. Capital flow was restricted. We only started with 17 members and $17,000, which as you can imagine meant access to a very small pool.

When we started, the founding members worked as volunteers. I was working for the Ministry of Finance at the time as an auditor. In addition, we had many other commitments such as spending time with the family making it difficult to spend sufficient time in building the cooperative. But commitment, persistence and belief paid off in the end. In fact, we first hired full-time staff in 1986, 6 years after we set up the cooperative.

What is the current state of Islamic and Ansar Co-operatives?

Today we have over 4,200 members spread across Canada, USA, and in fact, the world. We have a number of members from countries in the GCC, the subcontinent, the Far East and Europe, just as investors. Along with individual members, we also have a number of institutional members, such as businesses, mosques, schools and private corporations who have bought shares in the cooperative. The combined issued capital is over $5.5 million.

Give us a breakdown of the Ansar Financial group of companies.

Since 1980, Ansar has gone beyond its initial remit of providing housing (see Table 1). We have about 20 companies in the group and two coops. The growth has been organic and has been a case of observing the Muslim community, seeing what they needed and attempting to provide a solution that is interest-free. Our initial focus was on housing. We have two housing cooperatives: Islamic Housing Cooperative and Ansar Cooperative Housing Corporation, which was set up in 2003. Then we saw that car financing was another serious problem. In 1984, we started providing car ownership plans.

To do this, we had to create a private corporation called Ansarco Inc. as housing cooperatives are non-taxable whereas car financing is taxable. We also offer retirement saving plans. We noticed that some Muslims were putting their money in conventional retirement saving plans, gaining tax advantages but receiving interest while many Muslims were depriving themselves of the tax advantages by not contributing because of interest.

We developed our own retirement saving plans through our sister organisations, Al-Amin Association and Ansarco Inc. Investors can invest in the plan, receive a tax receipt and receive a tax deduction and earn halal income. The trustees invest the money in Ansar’s own companies through which we have invested in a few projects such as house and industrial condominium construction and residential land development. We also work in business financing, helping businesses buy necessary equipment.

By 2004, we had expanded to such a level that I had to take early retirement from my government job, in order to concentrate on sustenance and expansion of these business projects. My family and I did initially suffer financially because of a reduced pension package. However, I have no regrets. Ansar has grown significantly. Today we have 15 full-time employees and a number of volunteers. There are new shareholders as the Muslim community in Canada is growing. Our home-grown markets are getting bigger, and more affluent and many successful Muslims have a profound desire to comply with Shari’a. We have two offices in Toronto and an office in Alberta. In 2008 Islamic, Ansar and Qurtuba Housing Cooperative (an affiliate that operates only in the Province of Quebec) established Home and Auto-Takaful services for our members. This is a pilot project in which we have partnered with the second largest insurance company in Canada, The Co-Operators Insurance Group. Currently, we are attempting to raise awareness and request members to transfer to this program. Takaful is a growing segment in the Islamic finance industry with the structures proving to be much simpler and easier to explain. However, a regulatory requirement is that 70% of the premium has to be invested in fixed-income products. Fortunately, with the dawn of sukuk, we do not have to invest in conventional bonds and the like.

In 2010, we started Ansar Financial and Development Corporation (AFDC), which is a public company. We created a prospectus and arranged an IPO of $15 million with shares valued at a minimum offering rate of $11.75. We received $14.6 million in subscriptions. AFDC, the first interest-free public company in North America- will concentrate on investing in real estate and land development projects. We are not listed yet on a public stock exchange but intend to do so by next year.

Please explain to us the Shari’a structures you use for your products.

To purchase houses we have found that diminishing musharaka works the best. The basic model is simple. As a cooperative, we use only our members’/shareholders’ funds available to buy the property. The prospective homeowner will have to contribute 20% of the first $100,000 price; plus 25% of the next $100,000 and 30% of the next $100,000 price of the house, leaving the cooperative to pay the remaining amount. This means that for a $300,000 house, the cooperative will contribute a maximum of $225,000 for any given house. Once approved, the member will select the property and the cooperative will buy the house by paying the full cash amount. The homeowner has to pay a proportionate monthly rent over an indefinite time period. We do not impose a time limit on customers; however, the homeowners are required to increase their ownership/contribution in the house by buying more shares. As and when they buy additional shares- that could be every month, every two, three months, etc. – their proportionate rent is reduced by the same percentage. The rental income will be calculated according to how much they need to pay back to the cooperative. However, if they buy more shares in the cooperative, then the rental income goes down. From the rental income, we calculate a dividend from our quarterly holdings, though we pay the dividend at the end of the year. Over the last 30 years, our dividend average is approximately 6-7% per year. This is more than what you would receive from term deposits.

	Products Offerings	Company Provider
1.	Housing	Islamic and Ansar Co-operative Housing Corp.
2.	Business financing	Ansar Financial Group Companies
3.	Car ownership plans	Ansarco Inc.
4.	Interest free retirement savings plans	Al-Amin Association
5.	Equipment leasing	Ansarco Inc.
6.	Land Development	Ansar Development Corporation
7.	Residential and industrial Construction	Ansar Construction
8.	Nursing Homes	Ansar Medical Services
9.	Insurance	The Cooperators Group

For our car financing projects, we use the murabaha model, where we buy the car for the member and sell at a profit, with payments in instalments.

• Business Financing

In terms of business financing, we use the ijara model. For instance, we have had abattoirs that have needed equipment for chicken processing, and we have offered them the equipment through ijara.

Tell us a little more about Ansar Financial and Development Corporation.

As I have mentioned AFDC is our investment arm that invests in real estate and land development business projects. This is the first interest-free public company in North America. We have invested across Canada including an industrial park near Calgary, Alberta.

This project will be undertaken through a newly incorporated Alberta joint venture company known as A Fin Investments Ltd. AFDC will own 49% of this company and the remaining 51% will be owned by three other Ansar Financial Group companies. Ansar Industrial Park, as it will be called, will contain a series of different size lots which will be sold to various businesses.

AFDC has also agreed to invest around $500,000 in the purchase of 49% of 22 residential lots in the Deer Valley residential project near Edmonton airport through A Fin Investments Ltd. We are also building nursing homes and senior retirement homes, which will be in Toronto. We are also looking to create a cemetery, funded by AFDC. Graves are quite expensive, and currently, Muslims in Toronto are using non-Muslim cemeteries. It would be beneficial if we have our own with its own prayer area and washroom facilities.

Why has Ansar moved beyond their initial remit of providing retail products?

What we have concluded is that there are financial requirements and various community development needs of Muslims which we intend to cater for by supplementing and subsidising these requirements through for-profit commercial ventures. Not only are we attempting to create a profitable wing to our work but we are also working with small businesses and helping them to develop. We have financed a number of ventures including restaurants, medical professional offices and retail shops. We own a large amount of land, and through buying and selling land, we have greater access to a pool of funds, allowing us to give higher dividends to our members. In addition, we are looking at broader community needs. As a future project, we have hopes to establish a hospital. There is a Jewish hospital and a Christian hospital, why can there not be a Muslim hospital, say Mount Hira Hospital or Medinah Hospital? We have offered a plan to the Minister of Health and we intend to partner with groups to establish a hospital in Calgary.

How large do you wish Ansar to grow?

I could say the sky is the limit but I believe gradual progress is the best way to go. I am concerned that if we expand too fast, we may over-commit, and this will be detrimental to our customers. One fact that is quite important for us is persuading conventional institutions to become involved in Islamic financing, and impressing upon them the benefits of our principles and the growth potential of our products. Having their support, it makes it easier for us to offer and to promote our products. A key issue is regulatory uncertainty and reinterpreting laws to account for Shari’a-compliant products. In the UK, there have been changes made to regulatory interpretations, redefining various legal terms in order to facilitate an arena for Islamic finance. At a conference in Toronto in 2008 by The Canadian Institute, a UK FSA official highlighted that a positive way in combining regulation with Shari’a rules, without foregoing the intents and purposes of both, is to broaden the definitions of the products, allowing Islamic finance products to come under a general umbrella.

Do you have a Shari’a Board?

We do not have a Shari’a board but we do have a Shari’a/Ethics Committee. This is mainly for AFDC. It is quite a novel idea in which we juxtaposed ethics with Shari’a. When filling out the prospectus for AFDC, we added this Committee in the Corporate By-Laws and this was accepted by the Securities Commission. Currently, we have three members on the committee.

Is there an interest by the government and conventional institutions in Islamic finance? There is an interest and we are constantly advocating Islamic finance to conventional institutions. The Canadian finance minister went to Dubai to learn more about Islamic banking and finance and he set up a task force to see if Islamic banking can be introduced in Canada. We are a member of an Islamic Finance Working Group that is part of Toronto Financial Services Alliance, a non-governmental organisation seeking to promote Toronto as a financial hub. The group published a report looking into how Islamic finance can be developed in Toronto and throughout Canada and offered a series of recommendations. Unfortunately, there is some ambiguity as to the government’s

approach to Islamic finance. I think more needs to be done. Institutionally, there is a lot of interest. Our pilot takaful project was made possible by our relationship with the President and CEO of The Cooperators, the second-largest insurance company in Canada. She is a past President and a member of the International Cooperative and Mutual Insurance Federation (ICMIF), a promotion and advocacy group for mutual insurance. Our Co-operatives are part of ICMIF too, and therefore, gaining her support was crucial in providing the right takaful product. At the moment, The cooperators is offering home, automobile and commercial property insurance under a Takaful programme to our Cooperative members only; not to the general Muslim population yet. Toronto has hosted three international Islamic banking and finance conferences. The last one was held in Ottawa where 60% of attendees were non-Muslims: it included major Canadian bank and insurance executives, politicians, lawyers and staff from regulatory authorities. Some Canadian law firms are also keen on getting involved in Islamic finance. Borden Ladner Gervais (BLG) and Stikeman Elliot are two firms that are actively courting and promoting Islamic finance. Credit Unions are also interested in providing Islamic finance. In fact, we are interested in establishing a Shari’a-compliant credit union. They are simple models and are easier to run. BLG has expressed interest and is

keen to support the idea.

 

What was the impact of the UM Financial court case?

The UM Finance debacle was unfortunate and could have been seriously detrimental to Islamic finance in Canada. There were a lot of credit union clients/depositors who were not affluent and any default would have irredeemably affected them. Fortunately, there was not a huge backlash. People realised it was an isolated case and was not indicative of the industry as a whole. However, resolving the situation is going to take some time and previous customers have come to us to assist them with repayments.

Has there been interest from outside Canada for the Ansar Housing model?

There has been a lot of interest in the model we have created. There are two similar cooperatives in USA, and in the UK, you have Ansar Finance based in Manchester. But what is particularly interesting is that Islamic finance centres are also expressing interest in the model.

In Malaysia, they have adopted a murabaha structure for house purchases. There are however a few issues with the model.

Primarily, murabaha assumes a fixed time period, which enables the calculation of the profit. The payment period could be up to 25 years and in a world where people are much more mobile than previously, this could cause problems when it comes to selling the house. This is precisely what has happened in some cases in Malaysia. In such a model not only people have problems when attempting to sell their house but the house price did not appreciate sufficiently. The current market price of the house would be considerably less than the outstanding amount payable to the bank. Unfortunately, if the banks ask for the full price to be paid back, (as happened in some cases in Malaysia) brings it particularly burdensome on the departing occupier. Many people have sued the banks in their attempts to foreclose.

Our model does not tie the person to the house for a fixed term. In a diminishing musharaka, there is no fixed term or a prefix profit markup. If they wish to sell, there is a process and any gain or loss is shared based on the current market value of the house.

Similarly, in Saudi Arabia, there has been a lot of discussion on a new mortgage law as homeownership is a major concern. In cases of default, banks have attempted to foreclose. When they attempted to foreclose, the courts ruled that those interest-based contracts were illegal and thus unenforceable. In both situations, neither the bank nor the owner has benefited.

I have been invited to Malaysia, Indonesia and Saudi Arabia to give lectures on the model and what I have found is a belief that its structures and principles can counter some of the problems arising from their own home financing models.

In Malaysia, the Ministry of Housing and some other groups have invited me to speak a few times on this issue. The last time I went was in 2010. I have also been to Saudi Arabia to present our model. It was gratifying when after my presentation, the Deputy Chairman of the Saudi Arabian Monetary Agency (SAMA) exhorted and told the bankers that our model was the solution to their current house mortgage problem!

Pervez Nasim is a Bachelor of Commerce and a Certified Management Accountant. He is a founding member and Chair of the Board of the Islamic Co-operative Housing Corporation Ltd., the first interest-free home Ownership and investment project

in North America. He is also Chairman & CEO of Ansar Cooperative Housing Corporation and a number of Ansar Financial Group of Companies. Ansar Financial Group Companies are managing investments in excess of $85 Million on interest- free basis in various projects and joint ventures in Canada. Pervez Nasim is also Chairman & CEO of the first interest-free public company in North America known as Ansar Financial and Development Corporation Ltd. This company is expected to be listed on

a Stock Exchange in Canada early next year.