Because we know it’s easier said than doneMay 28, 2015 9:53
Canada bankruptcy may hurt Islamic Finance in North America
The insolvency of an Islamic mortgage lender in Canada may hinder the growth of Sharia-compliant finance in North America, where it is already struggling in the absence of regulation.
December 5, 2011 2:30 by Reuters
…repercussions on the growth of Islamic finance that are still being felt today.”
Thousands of Egyptians were hurt in the 1980s by money management companies that touted Islamic investments at returns above prevailing interest rates and did not deliver on their promises. Egyptians were left with a distrust of the industry, which is one reason that the country has lagged Gulf Arab states in promoting Islamic finance.
In Canada and the United States, Islamic finance has largely been confined to mortgages because of a lack of regulatory standards in place to accommodate full-scale Islamic banking and issuance of sukuk, or Islamic bonds.
Walid Hejazi, professor at the University of Toronto’s Rotman School of Management, said Islamic finance in Canada was hampered by the fact that big established banks were not involved in the industry. Smaller players therefore had difficulty seeking finance.
UM Financial obtained financing from Canada’s Central 1 Credit Union, which called for repayment in November 2010. Central 1 then applied in March this year for the appointment of a receiver.
According to a suit filed against Central 1 Credit by UM Financial Inc, Central 1 Credit told the Islamic lender it “wished to discontinue its involvement in the Islamic finance business by the first quarter of 2012″.
It turned down offers by other lenders to buy the sharia-compliant portfolio and prevent the receivership, Norman Ayoub, who was a board member of UM Financial Inc at the time, said in an emailed statement.
“To my knowledge at the time no mortgage was in default, nor was there a payment of the loan to Central in arrears,” he said.
A spokesman for Central 1 declined to comment, referring the matter to the receiver. Representatives of Grant Thornton declined to comment.
Contacted by Reuters, UM Financial Inc’s chief executive Omar Kalair declined to comment, citing pending court proceedings. But his attorney, Harvin Pitch of Teplitsky Colson, said in an emailed statement that Grant Thornton had not concluded that anyone in the company had broken Canadian law; it also said Kalair “has been cooperating with the receiver on all requests where allowed by law”.
Harvin added that “the solution to the receivership is obviously a sale of the portfolio to a new lender who can service the clients hopefully in a sharia-compliant manner”.
Grant Thornton has placed advertisements seeking buyers in Canadian newspapers.
UM Financial Group, an affiliate of UM Financial Inc, said it was in final talks with a Gulf-based Islamic bank for the two institutions jointly to enter the Canadian market as a finance company, potentially acquiring UM Financial Inc’s portfolio. UM Financial Group did not elaborate on the identity of the Gulf institution.
SNR Denton’s Siddiqui said the industry was hoping for a quick resolution, either through the courts or through the acquisition of the portfolio by a sharia-compliant lender.
“If no one comes to help it to meet its financial obligations, innocent customers may go through the agony of worrying about the possibility of losing their homes through no fault of their own. It will be a setback for the industry.” (By Shaheen Pasha and Cameron French; Editing by Andrew Torchia and Will Waterman)
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