Interest-Free Mortgages?

Financiers open doors for Muslim Canadians

BY ROHIT BHASKAR
EDIFY MAGAZINE ARTICLE PUBLISHED MAY 9, 2022

illustration by Rachel Beyer, Edify

Imagine this: You want to buy your first home, but your religious convictions forbid you from paying interest. What do you do? This is a concern for many Muslim- Canadians. A new Alberta-based financing company could be a gamechanger on this front and help Muslim-Canadians fullfill their dream of owning little houses on the prairie.

The Canadian Halal Financing Corporation (CHFC) works in conjunction with Edmonton’s Al Rashid Mosque, which, erected in 1938, became the first mosque built in Canada. CHFC launched this past December with the aim of helping Muslim-Canadians, whose religion forces them to eschew traditional mortgages because interest is haram (forbidden) in their religion.

As opposed to traditional banks that charge interest, and then reinvest those funds in products (which could include cannabis, alcohol, pork and gambling) that are strictly forbidden under Islamic laws, the CHFC model is one that will satisfy conservative Muslims and help them become homeowners without breaking the tenets of their religion.

The CHFC was incorporated after nearly two-and-a-half years of behind-the-scenes discussions between Islamic finance scholars and Imams and Canadian lawyers to establish a model that adheres to both Sharia law and Canadian law.

Former Edmonton-Castle Downs MLA and Alberta deputy premier, Thomas Lukaszuk, and his business partner, lawyer John Stainton, are the two principal executives at CHFC. They worked closely with Islamic finance experts and Imams from the Al Rashid Mosque to formulate a model that could see a growing, under-served community become homeowners for the first time.

In practice, clients, who are vetted based on their income and credit history, put down 25 per cent of the value of the home, while the CHFC invests the remaining 75 per cent. Instead of paying interest, the client’s monthly payments include a sum that accounts for CHFC’s cost and profit margin; the borrowers essentially pay off CHFC’s share of the ownership.

Also, unlike traditional mortgages where the banks insure the loan with the Canadian Mortgage and Housing Corporation (CMHC) or private firms, CHFC’s contract doesn’t include any third-party insurers (as that is forbidden under Sharia law) and they bear all the risk.

“We launched on Christmas Eve last year and received 176 applications on the first day itself,” says Lukaszuk. “It showed to us that the two-and-a-half years of COVID, which we spent holding Zoom discussions with Islamic finance scholars and our team of lawyers, was well worth the effort. We’ve already helped families move into homes across Alberta, including in Lethbridge and Fort McMurray.”

He adds that finding clients or approving applications are lesser concerns, “We’ve approved hundreds of clients but many have told us that there’s a shortage of houses on the market, and the challenge for them hasn’t been getting approved but, rather, finding a suitable house.”

Lukaszuk says there’s really one key difference between CHFC’s work and what it takes to get approved at a bank. “We laugh in the office that we never use the multiplication sign on our calculators. Say, for example, you take out a $300,000 mortgage from a bank, it will always be $300,000 times three per cent [or whatever interest rate the bank decides]. Instead, we know what our costs are and what our profit margin is, both of which have been approved after consultations with the mosque’s Fatwa committee. So, what we do is $300,000 plus cost plus profit margin. We use the addition sign instead of the multiplication sign.”

This article appears in the May 2022 issue of Edify