Canada and its primary financial centre, Toronto, are positioned ideally to become the predominant North American hub for Islamic finance, even relative to the U.S., a new study suggests.
Specifically, Canada’s reputation for economic strength and stability; its sound regulatory and compliance regimes; and its reputation for openness in engaging with foreign markets and cultures, gives it natural advantages to win this business, says the study, entitled Canada Islamic Finance Outlook 2016.
“[Islamic] finance is just another way to structure various financial deals, financial services, financial products,” says Janet Ecker, president and CEO of the Toronto Financial Services Alliance (TFSA), a public-private organization dedicated to boosting the city as a financial centre, which released the study jointly with Thomson Reuters Corp. at the World Islamic Banking Conference (WIBC) in Bahrain on Wednesday. “And for a region such as Toronto that is working to build an international standing and status as a global financial centre, having the ability to do business in the full range of financial mechanisms should be a table stake.”
Islamic finance involves the raising of capital, and the structuring of financial products and services in such a way so as to be compliant with certain principles in Islam, such as the prohibition against the charging of interest.
“I know some people may be a little put off by the fact it’s called Islamic finance,” Ecker says. “But what it is, actually, is ethical investing. It is doing finance in a way that is asset-backed and in a way that doesn’t engage in [investments that are associated] with tobacco, alcohol and weapons, for example.”
Although the U.S. may be the larger economic market, Canada has a proportionately larger Muslim population, expected to represent 6.6% (three million people) of the total Canadian population by 2030, up from 3% (1.3 million) today, the study argues. Canada also benefits from its sterling reputation abroad both for fiscal prudence and for its ability to engage with foreign markets and cultures.
“When I was at the WIBC this week in Bahrain, one of the things that resonated very strongly was [the delegates’] perception of Canada as being more conducive to doing business with different cultures, and different countries, around the world,” Ecker says. “There was a comfort level — it certainly was expressed to me — among many of the delegates at the conference in dealing with Canada vs the U.S.”
Currently, there’s the potential for more than $2 billion in Shariah-compliant mortgages in Canada, rising to $18 billion by 2020, which would provide a base to support the development of a domestic Islamic banking system, the study argues. In addition, the development of a domestic Islamic bond business could boost the inflow of foreign capital.
“Infrastructure — hard-asset projects — are very, very complementary to Islamic finance,” Ecker says, “and, as you know, we have a multi-billion dollar infrastructure challenge in Canada in terms of financing these projects.”
A certain number of large Canadian banks and insurers are currently involved in providing Islamic finance products and services in certain foreign markets in which they operate. However, Islamic finance products and services in Canada today are largely limited to credit union providers.
“It’s a marketplace decision [as to whether firms decide to develop this business],” Ecker says. “But our job [with this study] is to make sure that we’re not missing any opportunity.”