Banking on Faith: Conference on Islamic Banking and Finance
By Faisal Kutty
"There is a huge opportunity for Islamic banking and finance in Canada," according to Don Blenkarn, former chairman of the Special Committee on Banks and Banking and of the House of Commons Finance Committee. The former Conservative member of Parliament chaired the first Islamic Banking Conference in Canada, held in Toronto on May 25, 1995.
The conference, attended by more than 75 participants, including representatives from government, the Export Development Corporation, and private banking and investment institutions, was co-sponsored by the Islamic Society of North America, Zafar & Associates, and the American Journal of Islamic Finance. Discussing the potential for Islamic finance in North America, participants said that the main problems centered around the existing banking and security laws, which were seen as unduly restrictive. Speakers included Dr. Ahmed Elnaggar, former general secretary of the Islamic Bankers Association and one of the pioneers of the Islamic banking movement, and other experts from Egypt, Bahrain, Kuwait and Malaysia.
Islamic banks are growing at the rate of 15 percent per annum, currently operate in more than 50 countries, and account for more than $80 billion in savings. Many Islamic banks are headquartered in Geneva, and some conventional banks in the U.K. have set up Islamic banking units. In fact, the British bank Kleinvort Benson has even set up an Islamic Banking research institute to develop new Islamic trade finance instruments in consultation with Islamic scholars.
Sheikh Nizam Yaquby, a graduate in ecoonomics from McGill University and presently the shariah (Islamic law) adviser to the Arab Islamic Bank in Bahrain, described the constraints imposed by the shariah on investment of savings. Maximization of profits is permitted, but within an ethical framework. The two distinguishing features of Islamic finance are the prohibition of interest, and the prohibition of investment in businesses dealing in alcohol, gambling, pornography and other socially destructive and Islamically objectionable products and services.
Islamic investors cannot receive a guaranteed return (interest). However, they can invest in profit-sharing ventures (which involve a business risk) and lease deals without interest. Islamic financial instruments include Murabaha (mark-up financing), Ijara (leasing), Ijara wa Iqtina (lease purchase financing), Mudaraba (trust finance), and Musharaka (equity participation).
Though it has not been possible to set up an Islamic bank, there have been successes since Islamic finance facilities were introduced into North America in the mid-1980s. These include two mutual funds, a number of housing co-operatives, and other investment vehicles adhering to Islamic law.
Conventional and Islamic institutions can successfully coexist.
"I wouldn't say that this is a major part of American finance, but it's definitely growing," says Nicholas Kaiser, president of the Saturna Capital Corporation based in Bellingham, Washington. Saturna manages the $20 million Amana Mutual Funds in accordance with Islamic law.
Canada's 500,000 Muslims and the growing number of socially conscious inventors provide a great market for institutions following the ethical guidelines laid down in Islam, said member of parliament and member of the House of Commons Justice Committee, Derek Lee.
In Toronto, the Islamic Co-operative Housing Corporation currently has an issued capital of more than $22 million. In addition, Muslims in Toronto now have Ansaroo Inc. and Al-Amin Association, providing venture capital and an Islamic alternative to invest RRSP funds, respectively.
Steven Thomas, the publisher of the American Journal of Islamic Finance, believes there is a great future for Islamic banking in North America if the regulators would ease up. …