Michael Taube: Why Canada’s banks should avoid halal mortgages at all costs (2024)

Prime Minister Justin Trudeau and the Liberalsannounced in the recent federal budget that they were going to introduce “alternative financing products, including halal mortgages” which would “enable Muslim Canadians, and other diverse communities, to further participate in the housing market.” This surely led to many bemused looks, much head-scratching and Google searches aplenty.

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I knew exactly what a halal mortgage was — and what the PM was trying to do. Canada’s large and mid-sized banks, and other lending institutions, should avoid them at all costs.

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While most Canadians would likely be familiar with my name through politics and the media, I’m also a licensed mortgage agent. Moreover, my family has been involved in mortgages and investments for over a century.

I first became aware of halal mortgages after a cold call several years ago. After navigating my way through this short conversation, I learned more about them.

Briefly, the origins can be found in traditional concepts of Islamic finance and banking. In the book Islam and the Path to Human and Economic Development, Abbas Mirakhor and Hossein Askari write: “The rule of no harm, no injury (la dharar wa la dhirar) was promulgated by the Prophet based on the Qur’an to ensure there is no adverse effect of private economic behaviour on third parties or on society … the Prophet, in accordance with prescribed rules, prohibited theft, bribery, interest on money, the usurpation of the property rights of others by force, and other ethically and morally forbidden activities as sources of income and wealth.” In other words, anything to be paid in excess of a loan, such as interest or late penalties, would be seenasriba, the Islamic word for “usury” or “unjust.”

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Modern Islamic banking appears to follow this same pattern with halal mortgages. Using Islamic (or Shariah) law as its basis, this is an interest-free mortgage that enables Muslim Canadians to purchase homes and become property owners. There are a small numberof Islamic banks and private lenders that offer halal mortgages to prospective clients, and the financial transaction takes place under those confines.

I don’t have any particular issue with this limited type of financial transaction and business practice. Muslims are one of several faith communities that engage in specific lending practices based on religious traditions. If it makes sense for the mortgagor (borrower) and mortgagee (lender) to engage in this type of arrangement due to personal and religious beliefs, that’s fine. It shouldn’t be of any concern to those Canadians who aren’t Muslim.

What is concerning is that Trudeau is now trying to push Canada’s large and mid-sized banks, as well as other lending institutions, into offering halal mortgages. They should reject his proposal immediately.

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Banks and lending institutions in western democracies like Canada are supposed to offer a wide variety of mortgage options to all prospective homeowners who are unable to pay the full amount up front. Every option, including open and closed mortgages, contain some sort of interest payment with the loan. This follows the basic model of Western-style banking and free market capitalism.

Most Canadians would therefore be insane not to jump at an opportunity of getting an interest-free halal mortgage! It would make it easier for young people to become first-time homeowners. Existing homeowners would have a chance to purchase a larger home with no fear of crippling interest payments and long-term financial debt. Most importantly, it would reduce the possibility of individuals and families falling behind in mortgage payments and potentially losing their homes.

Halal mortgages won’t be readily available in non-Muslim communities, however. Christians, Jews, Hindus, Buddhists and others don’t follow the tenets of Islam and wouldn’t qualify for this type of mortgage. It would be an extremely limited offering at best, which goes against the very nature of operating a bank or lending institution in a western democracy.

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Meanwhile, Canada’s banks and lending institutions do want to help homeowners, but they’re also in the business of making money. Interest payments are a part of this basic capitalist principle in democratic societies. Otherwise, they’re simply arranging mortgages and loaning out money with no rate of return or economic benefit. That doesn’t make any business sense whatsoever.

It’s also worth pointing out some Muslim families could unexpectedly fall behind in a halal mortgage situation. If one of Canada’s big banks was theoretically involved, and had to foreclose and issue a power of sale, that would be a nightmare scenario that no-one would want to touch with a 10-foot pole.

Not that the Liberals care about any of this. They have a strategy in mind.

Trudeau will toot his own horn and state that he tried to open the door to help more Muslim Canadian families become homeowners. He’ll blame the big banks and lending institutions for refusing to help this expanding minority community achieve their hopes and dreams by introducing halal mortgages. He’ll tell Muslim Canadians to vote for him in the next federal election, and we’ll force those greedy bankers to make this happen.

That’s what this whole exercise is obviously about. Muslim Canadians should be insulted that the Liberals, who are collapsing in the polls and would get demolished if an election were called today, are trying to use them as political pawns in hopes of turning their dwindling electoral fortunes around.

To Trudeau, it’s only about (political) business.

National Post

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