“Canada bankruptcy may hurt Islamic finance in North America”
By Shaheen Pasha and Cameron FrenchÂ (Al Reuters)
Interesting that Prince Al Waleed bin Talal invests his money in Citibank, Chase and other solid money making machines, yet our elites would have us believe that Â Sharia Finance is something we must have to be all inclusive and diverse, no matter what the cost.
Looks like the dhimmified Brits aren’t having any luck with this scam either:
Winston Churchill was right all along:
Â Improvident habits, slovenly systems of agriculture, sluggish methods of commerce, and insecurity of property exist wherever the followers of the Prophet rule or live.
DUBAI/TORONTOÂ (Reuters) – The insolvency of an Islamic mortgage lender in Canada may hinder the growth of sharia-compliant finance in North America, where the industry has struggled to gain traction in the absence of a supportive regulatory framework.
UM Financial Inc was ordered into receivership in October, leaving about $32 million worth of mortgages in the hands of Toronto’s legal system. Accounting and business advisory firm Grant Thornton was appointed receiver by the Ontario Superior Court of Justice.
Not to worry; the O’turd figured it all out:
Marxist Muslim POTUS insists that “Capitalism Failed- It Never Worked…”Â
The case has exposed uncertainty over the legal treatment of sharia-compliant mortgages in default, and questions over the transparency and oversight of smaller Islamic lenders. Industry experts said this could make investors in Canada and the United States more wary of considering Islamic finance in future.
“The failure of an Islamic financial institution should not immediately be construed as a failure of sharia-based financing,” said Sheikh Muddassir Siddiqui, sharia scholar and partner at SNR Denton in Dubai.
But he added that the insolvency could give Islamic finance a bad name if the Canadian legal system determined that Islamic mortgage holders were not the ultimate owners of property for which they had been paying.
Since Islam forbids the use of interest, sharia-compliant mortgages rely on a “diminishing musharaka” contract to help Muslims finance homebuying. A lender and a homebuyer share the costs of purchasing a home; the homeowner then pays rent to the lender while purchasing the lender’s share of the house in installments. When the value of the house is eventually paid off, full title is transferred to the homeowner.
But it is unclear who ultimately owns the home in the case of a bankruptcy by the lender, if legal title remains with the lender. This raises concern that mortgage holders could lose their homes if creditors come after the lender’s assets.
In UM Financial Inc’s case, homeowners are in limbo while the receiver investigates the insolvency. Some clients say they are reluctant to continue their normal payments to a non-sharia compliant entity, which raises the risk of them losing their homes for non-payment.
CUSTOMERS IN LIMBO
Omar Rahman, a 28-year-old recent college graduate, said the mortgage on his family’s home in the suburbs of Toronto was nearly paid in full. But the insolvency means the mortgage could be transferred to a non-Muslim lender, violating the family’s conservative religious ideology, he said.
“The contract between us and UM Financial was sharia-compliant,” Rahman said. “There are no guarantees that it won’t be sold to a company that is not sharia-compliant, and that’s a scary thought for us. We have actually stopped making any payments until everything gets resolved.”
Another Toronto-based client of UM Financial Inc, who asked not to be named, said the experience had made him think twice about the use of Islamic finance.
“I thought that by working with a sharia-compliant lender and paying a premium over what I would have paid with a traditional mortgage, I was doing the right thing as a Muslim,” he said.
“I almost think it would have been better to go the traditional route. At least there would be some accountability.”
Such dissatisfaction is bad news for the development of Islamic finance in Canada, home to about 1.3 million Muslims. UM Financial Inc was one of the most established sharia-compliant mortgage providers in the country.
“I think this situation will cause reputational damage to the industry, similar in some ways to the situation in Egypt years ago when Egyptians lost millions of dollars in a corruption scandal involving a sharia-compliant institution,” said Nabil Issa, partner at law firm King & Spalding in Dubai.
“That was a majority Muslim country and (the scandal) had 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.”
(Editing by Andrew Torchia and Will Waterman)