For many prospective home buyers in Canada, obtaining a mortgage can be challenging due to high house prices. But for members of Canada’s Muslim community, those looking to buy a home may face an additional barrier: obtaining a mortgage that aligns with their faith.
Shariah, the body of Islamic religious law, prohibits the use of riba, also known as interest charged on loans. As a result, conventional mortgages offered by Canadian banks, which charge customers interest, are not considered Shariah-compliant or halal.
Mohamad Sawwaf is the co-founder and CEO of Manzil, a Toronto-based Islamic financial institution. Because major Canadian banks do not currently offer Shariah-compliant mortgages, this leaves many members of the Muslim community “financially excluded” from obtaining one, Sawwaf said.
“They basically stay out of this mainstream banking system because it doesn’t align with their religious or ethical principles, so it becomes very difficult to access funding,” Sawwaf told CTVNews.ca in a phone interview on Oct. 13. “Not everyone gets the same benefit when it comes to banking.”
According to Statistics Canada, Islam is the second most commonly reported religion in Canadawith nearly 1.8 million people as of 2021. In the span of 20 years, Canada’s Muslim population grew to 4.9 percent in 2021 from two percent in 2001.
Companies like Manzil and Alberta-based Canadian Halal Financial Corporation offer financial alternatives that they say are considered halal.
Halal mortgages can be obtained through two common Islamic financial structures, Sawwaf said. The first is called murabaha, or cost-plus financing. Through this method, the Islamic financier buys a house directly from the seller, becoming the owner of the house. The company will then immediately sell the house to its client with a built-in rate of profit, Sawwaf said. The terms of the contracts can reach up to 10 or 15 years and involve fixed monthly payments.
The second option is known as musharaka, which is when the company and its client enter the transaction as partners. Using this method, the client’s name will also appear on the home’s title deed. The company starts as co-owner of the property while its client occupies it. With each mortgage payment, the company’s equity position decreases until its client owns the home outright, Sawwaf said. The repayment period is usually between 25 and 30 years.
While these options may not carry interest, they come with additional fees imposed by financiers, said Imam Mahmoud Omar, who works with the Canadian Halal Financial Corporation. The company bases its mortgage rates on the Bank of Canada overnight rate, which currently it is 3.75 percent after another walk on Wednesday.
“It’s an unfortunate factor,” Omar told CTVNews.ca on Oct. 13 in a phone interview.
Prices can also be adjusted depending on how much capital a financial institution has or where it obtains this capital. Compared to the big banks, smaller companies like Manzil have access to less capital. As a result, they are able to charge more for their products as loans become riskier, Sawwaf said. Both financing options also require a hefty down payment, typically at least 20 percent.
According to the 2011 National Household Survey of Canada, the average rate of home ownership among Muslim Canadians was the lowest of all religious groups included, in 44.3 percent. Thomas Lukaszuk is a director and co-founder of the Canadian Halal Financial Corporation. A large proportion of Muslim Canadians are renters because they can’t get a conventional mortgage, he said.
“Most of our clients were born in Canada [and] they are what I would consider to be rather young and… well-educated families,” Lukaszuk told CTVNews.ca in a phone interview on Oct. 18. “We have doctors and specialists who have been renting houses for [up to] 20 years and would qualify for a conventional mortgage [at a major bank] no questions asked.”
Halal mortgages can act as an alternative for those who can afford to enter the housing market, but are stuck renting due to a lack of Shariah-compliant options available, Sawwaf said.
“There are a lot of people who participate in the rent when it is not necessary,” said Sawwaf. “[These options] let us close the financing gap that is required for them to move from renting to homeownership.”
DEMAND FOR ISLAMIC FUNDING EXPECTED TO INCREASE: EXPERTS
Part of the importance of expanding access to Islamic financial services is the strong demand for them, Sawwaf said. While his company, Manzil, currently serves about 35 families, more than 12,000 are currently on a waiting list. With an average mortgage application asking for $500,000, that equates to $6 billion required in financing, he said.
“I suspect demand will grow exponentially in the next few years,” he said, pointing to data showing Canada’s Muslim population is expected to reach nearly 2.7 million by 2030. “You will get an additional million Muslims who come from countries that are used to having Islamic banking products.”
This issue facing his company is a lack of capital supply, Sawwaf said, as well as limited awareness of Islamic banking in Canada.
“Any bank in Canada … could create a balance sheet for this,” he said. “But I think they always realize that it’s an ‘unknown’ product and they don’t want to get involved in what they may perceive as a higher risk.”
Saeed Teskie, who recently took out a musharaka mortgage through Manzil, said major banks are missing out on connecting with members of Canada’s Muslim community by not offering Shariah-compliant mortgages.
“For any major bank, if they decided to implement such deals, it would be a huge win for the bank because they would attract a large percentage of the Muslim community. [who] they want something like this,” Teskie told CTVNews.ca in a phone interview Wednesday. “It will be available to more people.”
Teskie, a business owner based in Hamilton, Ont., said he wasn’t about to compromise on getting a halal mortgage when buying his home this year. He submitted his mortgage application to Manzil in June and received approval in August, he said. He only required a $150,000 mortgage to pay off the rest of the freehold townhouse he recently purchased, since he was able to pay the balance himself.
“It’s very important to make sure financial deals are Shariah compliant, that’s part of my faith,” he said. “I feel more comfortable and more satisfied [with my purchase].”
Demand for services provided by the Canadian Halal Financial Corporation is also increasing, said Omar, who works with a committee of scholars specializing in Islamic finance and economics at Al Rashid Mosque in Edmonton. He is involved in the creation and review of mortgage contracts managed by the Canadian Halal Financial Corporation.
Since the company launched in December 2021, it has approved 600 applications and continues to receive 15 to 20 new applications each week, Lukaszuk said. While the company currently focuses on serving customers in Alberta, there are plans to expand services across the country, he said. The company has already received numerous requests from residents outside the province interested in applying for mortgages.
“I am disheartened by the fact that there are a large number of Canadians who have been left out of what we consider to be a right: home ownership,” Lukaszuk said.
ADDITIONAL BARRIERS TO ACCESS
Immadaldeen Moussa is a hairdresser from Edmonton who recently purchased his home through the Canadian Halal Financial Corporation. He said that he only knew about halal mortgages in August, just before he applied to the company.
Moussa was approved for a musharaka mortgage to buy a bungalow earlier this month.
“It’s a good way to get a mortgage that suits our way of life,” Moussa told CTVNews.ca in a phone interview Thursday. “When we face our Lord, we don’t have to tell him we care.”
This underscores the need to raise awareness of these services, Sawwaf said. Part of the solution also comes down to political will, as there are other financial hurdles Muslim Canadians may face when buying a home, especially if it’s their first time.
First-time home buyers who use Islamic financial services to purchase a home are not eligible for a refund on their land transfer tax in certain provinces, for example. This rebate is only available to individuals and not corporate entities, which play a leading role in helping Muslim Canadians buy a home interest-free.
Increasing education and removing obstacles like this can make it easier for members of Canada’s Muslim community to enter the housing market, Sawwaf said.
“I hope people keep an open mind about that bench,” Sawwaf said. “I only ask that we, who are already at a disadvantage, be on an equal footing.”
Omar said he would like to see major banks start offering Islamic financial services to Canadians, as well as a increase in housing supply. The importance of making these services more available goes beyond simply owning an asset, she said, especially for members of the Muslim community immigrating to Canada.
“It’s to make them feel more Canadian [and] part of the fabric of the community,” he said. “I like it [Canada] limited.”