Friday, 21 October 2011

Oops! ... I Guess The Sharia Compliant Banks Aren't Insured!

Muslim homeowners in Toronto left in the lurch after Sharia-compliant financiers go bust

The fact that devout Muslims are not permitted to charge or pay interest leads to some obvious conflict in a world that's largely run on credit. But people adapt, and so some in Toronto's Muslim population have started using institutions that rely on sanctioned work-arounds to the issue of interest. The problem is that one of the institutions has gone in to receivership:
Central 1 Credit Union provided financing for UM, which in turn charged a fee for providing mortgages — a sum higher than what borrowers would usually pay at market rates — in lieu of interest on home loans.
Some devout Muslims are willing to pay these fees, and the credit union and UM then split the profits from the fee.
Muhammad Robert Heft signed up for a mortgage with UM Financial Inc. four years ago. CBC
But earlier this year, Central 1 started an application to put the UM portfolio into receivership, saying it didn't have confidence in UM's business model or ability to pay money back.
And now homeowners aren't sure what's happening with their houses, having been given letters saying their mortgages are discharged (this is almost certainly false, and owners are taking it with a grain of salt according to the CBC).
The issue of Islamic finance is a fascinating one, and one that will become more important to Toronto as our Muslim population grows. Hopefully it can get the kinks worked out.

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