Towards Toronto
The city of Toronto is ideally placed to become an Islamic financial hub in North America: The 2008 Forbes Magazine Edition listed Toronto among the top 10 most economically powerful cities and confirmed that the city continues to be the economic heart of one of the world’s wealthiest countries and is, along with London, the fastest growing G7 financial centre. The Toronto Stock Exchange is ranked number two in the world in terms of the number of companies listed, and seventh in the world for equity capital raised. Canada’s banks have remained the strongest in the G7, and according to an October report by the World Economic Forum, the soundest in the world.
A new ranking by Bloomberg News puts four Canadian banks among North America’s top 10 as measured by assets, with Royal Bank of Canada in seventh place. Toronto-Dominion Bank, Bank of Nova Scotia and Bank of Montreal are eighth, ninth and 10th, respectively. A year ago, only Royal Bank of Canada made the list. Toronto-Dominion and Royal Bank of Canada are among only seven banks worldwide that still carry a Moody’s triple-A credit rating. Canada’s six largest banks made money in the latest quarter while big US banks such as Citigroup, Wells Fargo and Bank of America lost billions.
Islamic finance in Canada
The roots of Islamic finance in North America can be traced back to Toronto, where in 1979, the Islamic Cooperative Housing Corporation Ltd. was registered. This was the only available solution for financing hundreds of homes for over 25 years, relying on limited community investment funds. These funds were reinvested in homes to structure a home financing partnership based on a rent-to-own model. Over the years, a few more co-operatives have come to the market. UM Financial an Islamic financial institution was incorporated in 2004 and to date has partnered with five Canadian financial institutions in structuring and distributing pioneering Islamic retail financial products such as bank accounts, term deposits, investments, credit cards and mortgages to Canada’s 1 million-strong Muslim community. Recently, UM presented Central 1 Credit Union a mile-stone award for its close to US$ 100 million funding to UM, which has yielded a US$ 10 million profit for Central 1 over the last four years. Islamic financial products are similar to halal food products, kosher food products or organic products in that all have a certification board and higher costs due to the absence of economies of scale. The goal of the Canadian Islamic financial industry is to bring products on par in pricing to the retail market, as is being done in the US and the UK.
Sovereign sukuk from Toronto
With Canada being a destination of investment from many countries, there have been governmental discussions to look at the feasibility of offering a sovereign sukuk in the near future. Having a sovereign sukuk in Canada would open the doors for many more structured sukuk, such as corporate sukuk, which could further enhance Toronto’s role as a hub for Islamic finance in North America. Toronto is well-placed to duplicate London in taking on such a role in North America. With the recent launch of the S&P TSX 60 Shari’a Index and discussions at many government levels, we see the market maturing rapidly. At this stage, the private sector, which is represented by the TFSA, is in the best position to lead this direction and introduce the benefits of Islamic finance.
Evolution of the industry in Toronto
As other Western countries with Muslim minority populations have allowed dedicated Islamic banks, the same will happen in Canada in due course. Most Western countries, including the UK, saw Islamic banks established after a decade of Islamic products had appeared in the marketplace. At present in Canada, there are few products besides the UM Financial product line. It is foreseen that more Islamic opportunities will open in the next few years, which would then create a tangible market for a dedicated Islamic bank.
Conservative estimates suggest that more than US$ 10 million of seed investment has been spent on Islamic bank applications and shell companies trying to enter the Islamic finance market. These applications have helped to educate federal and provincial regulators and law firms and consulting firms that were involved and have created awareness of the international growth in the industry. Unfortunately, some regulators and investors who invested in some of these shell companies have a very negative image of the industry due to some companies soliciting investors and clients without the proper approvals, or investors not being able to receive information on their investments. Within the community, initiatives that are purely profit-driven have failed, such as the RBC-linked Islamic investment notes and Dynamic Mutual Fund Islamic mutual fund. Community-based institutional initiatives, such as co-ops and UM Financial (which has close to 10 years of direct community activism) have had a more successful history. In Toronto, the First Fiqh Conference of North America was held in May, where a resolution was passed that states, “The participant panel of Scholars agreed that interest-based loans and all forms of insurance are prohibited in Islam. In some isolated cases, insurance and interest-based loans may be permissible in a situation of dire need or necessity and or a life-and-death situation. For the clarification of whether one’s situation meets dire necessity, one is to seek clarification from reliable qualified Muslim scholars of Shari’a (Islamic jurisprudence). The panel also encourages Muslims to establish and utilize alternative Islamic models of finance and takaful (Islamic insurance).” In June, to further educate the Toronto community in this fast-growing discipline, the Islamic Foundation of Toronto hosted a youth conference at Toronto’s largest mosque that featured a three-day retreat on Islamic finance.
