By Tarek Fatah
17 October, 2011
The leading promoter of Sharia banking in Canada, UM Financial Inc. has gone into receivership without much fanfare. None of the nation's newspapers have bothered to report the development, despite the fact it could possibly affect hundreds of homeowners. Had it not been for a tweet by an affected Muslim homeowner looking for a lawyer, the story of UM Financial going broke would have escaped even the scant attention the news received on social media.
Tweeting under the username @UM_FinanceBROKE, the tweeter wrote:
"Sorry Toronto Muslim Homeowners, I have bad news. I just learned UM Financial is Bankrupt. I need a good Canadian lawyer"
The troubles at UM Financial did not come overnight. As far back as April 2007, the Toronto Star reported on the company's liquidity problems. The Star wrote that Omar Kalair, the founder of UM Financial, "is working hard to maintain on-going sources of funding." Kalair disclosed that the Credit Union Central of Ontario had extended an additional $50 million to the Sharia banking promoter, and "that will keep us going until the summer." Apparently, this month the money ran out and UM folded tent.
The consequences of this bankruptcy may effect thousands of Muslim homeowners. Leading up to the bankruptcy, there were quiet rumblings of discontent in the community. One indignant Muslim homeowner wrote to the Toronto Star:
"In the name of Shariah-compliant mortgages they charge extra fees... After accepting and approving our application, they refused us financing just a week before the closing of our home, thus putting us into great trouble... This last-minute refusal made us get a mortgage from an alternate source at a higher interest rate and spend an extra $2,500 for moving costs and living in a hotel with the entire family for one week."
What is Sharia Banking?
Most Canadians are aware how Premier Dalton McGuinty nixed the idea of introducing Sharia law into the Ontario Family Act and the subsequent failed attempt by John Tory's Conservatives to fund Sharia-based private Islamic schools, but few are aware of how Sharia is being sneaked into our financial system.
While Sharia-style family law was essentially promoted by imams and the mosque establishment, Sharia-based banking is being promoted by well-heeled Muslim bankers and investment lawyers, who are driven not by teachings of the Prophet but the lure of profits.
The Globe and Mail reported in May 2007: "Several Canadian financial institutions are preparing Sharia-compliant mortgages, insurance, taxi licensing and investment funds to help serve the country's fastest-growing part of the population."
This push from Muslim banking executives working inside the corporate world has had some success. Most big Canadian institutions are treading carefully, and not all are jumping on board. The Globe reported that while the Royal Bank of Canada "quietly tested a Sharia finance product a few years ago and didn't find enough market interest," other Canadian banks, smelling easy pickings, are lining up to wear the Islamic mantle. Sources say Scotiabank and Toronto-Dominion Bank have been quietly consideringwhether to start offering Sharia-compliant products as part of the big banks' strategy to reach out to what the newspaper referred to as a growing "immigrant population."
This was a politically correct way to describe Muslim immigrants as I doubt very much if Hindu, Sikh, and Chinese "immigrant" Canadians are excited at the prospect of Sharia banking.
While Canada's banks were salivating at the prospect of reaching this supposedly untapped niche market, it was UM (United Muslim) Financial Inc., a Muslim-owned financial institution with strong marketing and social links to many Islamist events in Canada that took the lead and lost.
So what are the origins Sharia banking, and why should Canadians be worried about its intrusion in our financial sector?
Origins of Sharia Banking
Islamic banking traces its roots to the 1920s, but did not start until the late 1970s, and owes much of its foundation to the Islamist doctrine of two people: Abul Ala Maududi of the Jamaat-e-Islami in Pakistan and Hassan al-Banna of the Muslim Brotherhood in Egypt. While these two pillars of the Pan-Islamist movement propagated jihad and war against the West, they also recognized the role international financial institutions could play in carrying out their political objectives.
Since 1928, when it was created, the Muslim Brotherhood has placed a high emphasis on the creation of a so-called Islamic economic system. Banna and his successor Syed Qutb even laid down principles of Islamic finance. Millard Burr and Robert Collins in their book Alms for Jihad claim that the Muslim Brotherhood watched, waited, and learned the management of money that was essential to finance a worldwide organization devoted to spreading their Islamist ideology.
But the theory was only put into practice once the U.S.-backed Pakistani military dictator General Zia-ul-Haq overthrew the government of Z.A. Bhutto and established Sharia law in Pakistan, forcing the country's public-sector banks to run their operations based on Islamic principles and without the role of interest.
Two senior Muslim banking experts-turned-authors have written scathing critiques of Sharia banking: Muhammad Saleem has labelled the practice as nothing more than deception, while Timur Kuran has suggested that the entire exercise was "a convenient pretext for advancing broad Islamic objectives and for lining the pockets of religious officials."
Why Canadian banks would contribute to this masquerade is a question for ordinary Canadians to ask.
Muhammad Saleem is former president and CEO of Park Avenue Bank in New York. Before that he was a senior banker with Bankers Trust, where among other responsibilities he headed the Middle East division and served as adviser to a prominent Islamic bank based in Bahrain.
In his book Islamic Banking -- A $300 Billion Deception, Saleem not only dismisses the founding premise of Sharia and Islamic banking, but says, "Islamic banks do not practice what they preach: they all charge interest, but disguised in Islamic garb. Thus they engage in deceptive and dishonest banking practices."
"Proponents of Islamic banking say that Islam bans all interest. But an understanding of pre-Islamic and Islamic history and keeping in mind the context would lead one to conclude that what the Quran bans is usury, not interest. Usury can be defined as interest above the legal or socially acceptable rate. Phrased differently, usury is the exploitative, exorbitant interest rate."
While Saleem goes to great lengths in exposing the intellectual dishonesty surrounding the marketing of Sharia-compliant banking, Professor Timur Kuran, who taught Islamic thought at the University of Southern California, mocks the very idea.
In his brilliant book Islam and Mammon: The Economic Predicaments of Islamism, Kuran writes:
"There is no distinctly Islamic way to build a ship, or defend a territory, or cure an epidemic, or forecast the weather." He says the effort to introduce Sharia banking "has promoted the spread of anti-modern currents of thought all across the Islamic world. It has also fostered an environment conducive to Islamist militancy."
Secondly, were these banks able to promote economic development in the Muslim world? In the words of Saleem: "Sadly, the answer is a resounding no. There is absolutely no evidence that the Islamic banks have made any contribution in either of these two areas."
The fact is that China and India, two countries that have had some measure of success in alleviating poverty and enhancing development, have outpaced all the Muslim countries put together despite their enormous natural resources and strategic locations. Shariah banking may not have alleviated poverty or generated economic development, but it has been a boon to the mullah class on one hand and, on the other, to the yuppie Muslim bankers and investment lawyers who have created a niche for themselves at the expense of the larger Muslim masses.
Saleem, who saw the functioning of Islamic banking from the inside, writes:
"In promoting the establishment of Islamic banking, the Sharia scholars have played a critical role. Lacking any knowledge of banking, economics and for many even Islamic history, in interpreting riba, they have confused interest with usury.... Secondly, as Sharia advisers to Islamic banks, they have blessed many transactions as Islamic--meaning non-interest bearing -- when in fact they are clearly charging interest, but interest payments are masked."
Dozens of Islamic scholars and imams now serve on Sharia boards of the banking industry. If Canada's TD Bank, BMO, and RBC join the league, it will be interesting to see how the ultra-left Trotskyite allies of the Islamists view their partners hobnobbing with the bankers atop Toronto's TD Tower.
Moreover, a new industry of Islamic banking conferences and forums has emerged, permitting hundreds of Sharia scholars to mix and mingle with bankers and economists at financial centres around the globe. In the words of Saleem, who attended many such meetings, they gather "to hear each other praise each other for all the innovations they are making."
There are at least five international conferences every year, including in Toronto, and these have been going on annually for the past 25 years. Saleem estimates that the cost of each conference exceeds $2 million and so far more than $200 million has been spent just keeping the Sharia banking circuit alive.
He cites one example of how Sharia scholars only care for the money they get from banks, and are willing to rubber-stamp any deal where interest is masked. Saleem describes one such incident as "comical":
"I have first hand seen comical cases where the Sharia scholar of an Islamic bank only spoke Arabic, but a lending officer only spoke English and Urdu. A particular financing transaction was structured in English with such terms as x% over LIBOR. So we had an interpreter who would translate from English to Arabic, explaining this convoluted transaction to the Sharia advisor. It was at times painful and other times comical to watch the proposal being presented to this religious scholar for his blessings to ensure that it was consistent with the principles of Sharia. The "Sharia scholar," elderly and partly deaf, had little experience in modern banking and finance. However, mindful of the fact that the bank was paying him a generous retainer, he gave his blessing to the deal, after being fully made aware that the bank wanted to do this deal, even though from the look on his face it was obvious that he could not tell the difference between a trade deal and a leveraged buyout transaction."
In the name of Islam, what amounts to deception and dishonesty are being practiced while ordinary Muslims are being made to feel that their interaction with mainstream banks is un-Islamic and sinful. As the Muslim banker asked:
"Through various devices -- mostly cosmetic -- [Islamic] banks end up with virtually no risk. If Islamic banks label their hamburger a Mecca Burger; as long as it still has the same ingredients as a McDonald's burger, is it really any different in substance?"
To the Muslim homeowner who out of solidarity with an Islamic institution seeks the help of UM Financial, the cost of owning a home becomes substantially more than what he or she would have to pay if they went through a conventional bank.
As the Toronto Star revealed, "the purchaser... pays a monthly rental fee equivalent to a mortgage fee. (If the mortgage interest rate is 5.5 per cent, the UM Financial/CUCO rental rate is 6.1 per cent.)"
Muhammad Saleem laments the fact that few people are exposing the deception of this exercise in the name of Islam. "We should be able to point out the failures and shortcomings of Islamic banking and economics without being accused of being anti-Islamic," he says. Perhaps Scotiabank, RBC, BMO, and the Office of the Superintendent of Financial Institutions will pay heed to this former banker's words of caution.
The Sharia-banking charade is a sad indictment of the Muslim community. Islamic banking is not some resurrection from a golden period -- it is a 20th century creation that flies in the face of reason, logic, and the spirit of Islam, yet it is being thrust on us for no fault of ours.
Islam's essence is its quest for equality and social justice. Muhammad Saleem says that any banking or economic system that purports to be "Islamic" -- including the current crop of Islamic banks -- should answer two questions: By supposedly staying away from interest and sharing risks with their clients, were they able to help make the economic system more just, fair and equitable, and honest?
The proponents of Sharia banking rest their case on many verses of the Holy Quran, which in their interpretation outlaw any business or personal financial transaction involving interest. There is no unanimity among the Muslims who, in voting with their feet and chequebooks, have overwhelmingly rejected banks that operate in a supposedly interest-free environment.
Most Muslims can see through the fog of deception, but we are a billion strong worldwide, and even if a small minority falls prey to the Islamist propaganda, there is lots of money to be made.
Quranic verses that address the question of the role and the question of loans and debts include:
Al Baqura (2:275): "God hath permitted trade and forbidden usury.Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for God [to judge]; but those who repeat [the offence] are companions of the Fire: They will abide therein [forever]."
Al Baqura (2:276): "Allah does not bless usury, and He causes charitable deeds to prosper, and Allah does not love any ungrateful sinner."
Al Baqura (2:278): "O you who believe! Be careful of (your duty to) Allah and relinquish what remains [due] from usury, if you are believers."
Al Baqura (2:280): "If the debtor is in a difficulty, grant him time Till it is easy for him to repay. But if ye remit it by way of charity, that is best for you if ye only knew."
Al Nisa (4:161): "And their taking usury though indeed they were forbidden it and their devouring the property of people falsely, and We have prepared for the unbelievers from among them a painful chastisement."
Ar Rum (30-39): "And whatever you lay out as usury, so that it may increase in the property of men, it shall not increase with Allah; and whatever you give in charity, desiring Allahs pleasure--it is these [persons] that shall get manifold."
From these Qur'anic verses it is abundantly clear that the Quran is addressing the rich money lenders to show compassion towards the borrower and give him or her more time to pay back the loan. In fact the Quran suggests to the lender that it would be far better if the money lender forgave the loan altogether.
To suggest that the onus of complying with Sharia rests on the weaker borrower is obscene and against the spirit of equity in Islam. I say this because what the imams and self-styled scholars of Sharia banking are proposing makes it easy for the wealthy to be pious simply by not having to do anything, while the poor who need to borrow are told to stay away from banks that lend.
Once more we see an example of Islam attempting to bring justice to the poor while Islamists make it difficult for the poor to access funds they don't have.
Today, owners of Islamic banks are billionaires -- the practitioners of Sharia banking are among the richest men in the world, while the vast majority of Muslims still struggle to eke out a living beyond one dollar a day. Sharia banking fattens the bottom lines of the imams, the bank owners, and the lawyers who pull out their best to islamicise anything that sustains their handsome hourly rate.
Every translation of the Quran into the English language has rendered the Arabic word riba as "usury," not "interest," yet Islamists have deliberately portrayed bank interest, the cost of borrowing money, as usury. For Islamists, there should be a cost to renting a car and renting a DVD, but when renting money for a period of time, there should be no cost of this capital. Instead, Islamists have created exotic products with names that are foreign to much of the world's Muslim population
This is where interest can be masked under the Niqab of Mudraba, Musharaka, Murabaha, and Ijara, Arabic names given to various banking products to make them appear Islamic.
Whereas interest is the charge for the privilege of borrowing money, typically expressed as an annual percentage rate, usury is the practice of lending money and charging the borrower interest, especially at an exorbitant or illegally high rate.
UM Financial is in receivership, but that does not mean the end of Sharia banking in Canada. Far from it. There is just too much money to be made at the expense of a vulnerable and naive community for mainstream banks to not pay attention to their Muslim executives who are promoting this business. There are dozens of Western banks that have partnered with Arab Banks in this profitable venture where the depositor gets no interest on his or her deposits, yet pays 50 points above the market interest rate on their mortgage, as a supposed act of piety to please Allah, but in fact ends up enriching the banks.