Canada: Will Slow and Steady Win the Race?

Though relatively underdeveloped compared to some other western jurisdictions, namely the UK and US, Islamic finance is making small but steady strides in the Canadian market. Rehan Huda discusses the increasingly attractive Islamic market in the country.

The Canadian Muslim population is rich in cultural, ethnic and linguistic diversity and is one of the fastest growing in Canada with a current population estimated to be over 1.2 million. Approximately half of the country’s Muslim population resides in the Greater Toronto Area and most of the large cities have experienced significant growth in Muslim immigration over the past decade. The Canadian Muslims are among the best-educated communities in the country and they have the lowest median age as well as larger family sizes. The population of Muslims in Canada is projected to double within the next 10 years.

The growth in size and affluence of the Muslim community in Canada has been accompanied by growth in the level of observance, leading to more vocal demand for Islamic financial products and services.

2013: A review

Some of the developments in Canada in the field of Islamic finance over the year 2013 have been in the area of wealth management. Two of the leading Canadian banks have advisors now offering Shariah compliant investment products.

Royal Bank of Canada and its subsidiaries operate under the master brand name RBC and is one of Canada’s largest banks as measured by assets and market capitalisation; and among the largest banks in the world, based on market capitalisation. RBC is one of North America’s leading diversified financial services companies, and provide personal and commercial banking, wealth management services, insurance, corporate and investment banking and investor services on a global basis.

RBC Dominion Securities, with CA$150 billion in assets under administration, is Canada’s leading full-service investment and wealth management firm. Dian Chaaban, one of the few Arabic speaking female advisors at the firm, has launched Shariah compliant investment services that aim to help Muslim families in Canada as well as businesses, charitable foundations and other organisations build on and preserve their wealth through sound financial planning, trusted investment advice and Shariah compliant wealth management solutions.

The Canadian Imperial Bank of Commerce was ranked as the strongest bank in North America and third-strongest in the world for the second straight year by a leading finance organisation. Its wealth management group, CIBC Wood Gundy, has the only advisor (Khaled Sultan) at a major Canadian financial institution who focuses exclusively on Shariah compliant investment products.

According to its analysis, the socially responsible and Shariah compliant investment market is increasing in numbers. Canadian investors have started looking beyond the bottom line on their investments to the ethics and impact of the underlying companies that drive their returns. Many Canadians have implemented responsible investing plans that mirror their personal ethical or religious values. Shariah compliant investing is viewed a subset of socially responsible and ethical investing based on investments that adhere to Islamic principles.

These leading Canadian financial institutions’ criteria used in screening out non-Shariah compliant vehicles include those outlined by the Shariah Supervisory Boards of the Dow Jones Islamic Market Index and S&P Shariah Indices.

The Rotman School of Management within the University of Toronto is Canada’s leading business school and continues to provide a leadership role in Islamic finance education. It has introduced Canada’s first MBA course in Islamic Finance, which is now entering its third year. The students that have taken this course come from diverse ethnic and religious backgrounds. The course is very rigorous and requires students to construct Shariah compliant financial structures and compare and contrast them to conventional structures.

The course has also received significant media attention from leading Canadian media outlets. The Rotman School has also held several roundtables and conferences over the past years that cover both Islamic finance and business opportunities in the Middle East. There has been strong demand for these events, and many executives from the Toronto financial community have attended. This is indeed a reflection of the increased desire on their part to learn about and hopefully become more involved in Islamic finance. The ground is shifting and it is likely that Canada will catch up with other western jurisdictions over the coming decade in terms of Islamic finance.

There have been some corporate finance activities from the joint ventures between Gulf investors and Canadian partners as well. For example SeaSpring Consulting, a financial consulting firm based in Bahrain and managed by Sheikh Isa Khalid Al Khalifa, coordinated an investment in Calgary-based IT company Wedge Networks and assisted in expanding its operations to the GCC region. Canada’s continued strong economic performance relative to many industrialised countries is making it an attractive alternative destination for global investors.

2014: A preview

It is expected that more private equity and wealth management-related Shariah compliant products will be developed in 2014. There is a need for an Islamic mortgage product as well as a diversified set of retail investment products.

The recent developments indicate that there may be further interest from mainstream Canadian financial institutions to explore Islamic financial products. As the Canadian market is becoming more and more attractive for international investors, there will also continue to be opportunities for Islamic financial institutions to participate in the Canadian market and help develop Islamic finance opportunities there. In this respective, there are a number of initiatives that are being undertaken to explore such opportunities as major Islamic financial institutions seek to diversify their assets and their investment risk.

Rehan Huda is the director of Amana Canada Holdings.

This article first appeared in Islamic Finance News (23 October 2013, Volume 10, Issue 42, Page 29-30).

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