Rising interest rates have caused many Canadians to shy away from obtaining a mortgage. But that isn’t the case for the Canadian Halal Financial Corporation’s customers.
Thomas Lukaszuk, a former cabinet minister and one of the founders of the Canadian Halal Financial Corporation, says they’re still seeing dozens of applications filter in each week. “We launched this program on December 24, 2021,” he says. “On December 25, we had 167 applications filed.”
The reason for the Edmonton-based company’s ongoing success is that they’re catering to the underserved Muslim community.
Under Islamic law, Muslims aren’t allowed to accept or pay interest—the act is considered exploitative. That makes it difficult for a Muslim person to buy property. Financing options tend to be limited to traditional lenders, such as banks, who charge interest and use the money obtained through mortgages to invest in businesses that don’t align with Islamic tradition, such as cannabis shops and alcohol manufacturers.
As a result, many Muslims are left looking for an alternative. “Our clients are medical doctors, lawyers, people with very high incomes, but they’ve never had enough disposable cash to buy a house. So, either they’re renters, they have entered into informal arrangements with family members, they borrow money from each other, or they pool money until one family buys a house,” Lukaszuk says. “But it’s very laborious and extremely time consuming to do that.”
Looking to solve this problem, representatives from the Al Rashid Mosque in Edmonton, the first Mosque in Canada, approached Lukaszuk in 2019 to discuss the possibility of introducing mortgages that did not involve interest.
Lukaszuk had worked closely with the community during his time as a politician and had since been involved in building projects, familiarizing him with the mortgage industry. With over a million Canadians identifying as Muslim, it was clear to Lukaszuk that there was a need for trustworthy Halal financing.
Lukaszuk and his partner, John Stainton, a lawyer and businessman, spent the next two years working with the Al Rashid Mosque to iron out the details of acceptable financing. According to Lukaszuk, the group spent hundreds of thousands of dollars in legal fees, ensuring the mortgages could be upheld in Canadian court. The group even travelled to Al-Azhar University in Cairo, Egypt—one of the oldest Islamic universities in the world that plays a key role in overseeing Middle Eastern banks—to receive a pronouncement saying that the company was 100 per cent compliant with Islamic law.
Other Halal financing companies do exist in Canada, but few are as regulated as the Canadian Halal Financial Corporation. Each financing contract is audited by a religious committee who certifies that the transaction is compliant.
When an application comes in, the Canadian Halal Financial Corporation calculates the profit it expects to make on the transaction. It then adds that number to the principal and divides the amount among a certain number of monthly payments. This way, the monthly payments don’t fluctuate as they would with interest rates.
The borrower must also pay a minimum of 25 per cent of the property’s market value or purchase price up front and show that they have good credit history and sufficient income to afford the monthly payments.
To ensure the transaction is halal, the company doesn’t allow any third parties to enter into the contract. “We are the lender, so there are no secondary contracts, and there are no insurances on our mortgages,” Lukaszuk says.
Rather than borrowing from banks, all of the money used for the mortgages comes from the Canadian Halal Financial Corporation’s own resources, including investments in pension plans and private wealth funds. Each investment is reviewed by a committee of Islamic finance scholars to ensure that it’s compliant.
Providing Halal loans has made a significant difference to the community. In 2012, Nadeem Rahman, a member of the Al-Rashid Mosque, moved his family from the Greater Toronto Area to Edmonton so that his kids could get a better education. With no Halal loans available, he was forced to rent.
“I searched a lot,” Rahman says. “I saw that there was an organization in Manitoba providing Halal mortgages, but not in Alberta at all.”
Rahman’s family was living in a neighbourhood close to the mosque and his kids’ school, but it wasn’t ideal. Rahman laughs when he says he always wanted a house with an attached garage. “The weather here is crazy,” he says, referring to the winters. “As you age, it’s very difficult to go out, clean your car, and then take your family out.”
When the Canadian Halal Financial Company launched, it opened doors for Rahman. He secured a mortgage and moved his family into a detached home with a double garage.
He’s thankful to the company, but he hopes it continues to expand, offering loans on other things, such as cottages, campers, and cars. “There are a lot of people who want to buy something, but they still can’t do it,” he says.
Lukaszuk is well aware. While the company deals primarily with principal residence mortgages, he says over the next year, the company plans to expand across Canada and start offering financing for all types of properties, including cottages.