“Canada’s Innovative Introduction of Halal Mortgages: A Guide for Muslim Borrowers”
Published on: April 25, 2024.
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Canadian Government Unveils Plans for Halal Mortgages
The Canadian government has recently announced its plans to introduce halal mortgages for Muslims in an effort to provide financing alternatives and support homeownership within the Muslim community. This initiative aims to address the specific needs of Canadian Muslims while promoting diversity in the housing market.
As outlined in the federal budget for 2024, the government will implement a two-year ban on foreigners purchasing land in the country. This budget emphasizes the government’s commitment to establishing alternative financing products, including halal mortgages, to encourage greater participation in homeownership among diverse communities, including Muslim Canadians.
The government has also expressed its dedication to engaging with financial service providers and various communities to improve federal policies in accommodating Canadians who are seeking homes. In March 2024, consultations were initiated to explore potential changes in the tax treatment of these products, as well as the establishment of a regulatory sandbox for financial service providers.
Why are conventional mortgages forbidden in Islamic law?
Islamic law, also known as Sharia, prohibits Muslims from engaging in interest-based transactions, deeming them exploitative and unethical. Instead of offering loans with interest, Islamic banks employ alternative payment structures to avoid charging interest.
What is a halal mortgage?
A halal mortgage adheres to Sharia principles by eliminating interest from the equation. There are three common types of halal mortgages:
1. Ijara: This model functions as a rent-to-own arrangement. The bank purchases the asset and leases it back to the customer over a specific period. Payments made contribute towards both the capital and provide a profit for the financial institution.
2. Musharaka: This form of partnership involves joint ownership of the property between the customer and the financier. Equity is gradually transferred, eventually dissolving the partnership.
3. Murabaha: This credit system involves the immediate sale of ownership to the customer, with profits integrated into the final offer. Factors such as the buyer’s credit history, deposit, and terms of the agreement are considered.
Due to their perceived riskiness, these structures often have higher costs compared to traditional interest-based loans. Currently, major Canadian banks do not offer halal mortgages, leading the Liberal government to address this gap. As a result, many Muslims are eagerly awaiting opportunities from smaller firms to engage in investments and homeownership.
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