Canada’s federal government has announced plans to explore new measures to make homeowning more accessible, including introducing alternative financing products such as ‘halal mortgages' for its Muslim community.
According to the federal budget, Justin Trudeau’s Liberal government has already begun consultations with financial service providers to better understand how policies can support the needs of diverse communities in the country.
The government started exploring options which could change "the tax treatment of these products" or provide a "new regulatory sandbox for financial service providers", according to the plans reported by local media.
Consultations started in March 2024, with the government saying it would make an announcement providing further details on what the plans would look like in the autumn.
Islam, like the other Abrahamic faiths, considers usury to be a sin. The charging of interest is considered a form of usury, therefore gains made through interest are considered to be unjust.
Interest, viewed as exploitative, is expressly forbidden in Islam. As a result, a number of Islamic banks have opened in the West in recent years, offering different payment structures to bypass giving loans and charging interest.
Islamic banks, to achieve monetary gains without charging interest, typically employ an equity participation system. In this arrangement, when a bank lends money to a business, the business does not pay back the loan with interest. Instead, it gives the bank a share of its profits.
Islamic banks also do not allow investments to be made in alcohol, gambling or other things forbidden by the religion.
Generally, Islamic finance operates on the principle of profit and risk sharing and is risk-averse.
‘Halal mortgage’
For Muslims, home owning can often be a predicament due to having to pay interest.
However, over the years, different payment structures have cropped up for Muslims who want to comply with Islamic law - or Sharia.
One of the payment structures is a rent-to-own model, where the bank buys the asset and then leases it back out to the customer over a set period of time. This allows for the payments to go towards the capital and also provides a profit for the bank.
Others opt for a form of partnership with the financer, which includes both parties owning the property until the equity is gradually transferred and the partnership dissolves.
There is also a credit system where the ownership is sold to the customer, and profits are included in the final offer, with the buyer’s credit history, deposit and terms of agreement factored in.
Last year, Canada’s National Post reported that many Muslims in the country had been renting for years, or decades, because of a lack of Islamic mortgage options.
While some Islamic banks and financial institutions have opened in Canada in recent years, none of the top banks currently offer Islamic mortgage options.