Is Sharia Banking Safe for Canada?

By Dan Verbin for ShalomLife:
With the Canadian Mortgage and Housing Corporation releasing a report this week that may pave the way for widespread availability of Islamic financial instruments in Canada – including Sharia-compliant mortgages – an expert on Islamic banking is cautioning that Canadians should examine the implications of implementing the report’s recommendations.

Dr. Rachel Ehrenfeld, a New York-based author who specializes in financial issues related to terrorism, told Shalom Life that Sharia-compliant mortgages often contain a myriad of hidden fees, inherent in the Islamic banking system. Since the Koran prohibits interest, Sharia-based banks create derivatives, which include fees that most borrowers are not told about upfront. Some of the fees go for zakat (the Third Pillar of Islam, between 2.5 per cent for individuals to 20 per cent “tax” for foreign business). Others have an imbedded “purification” process for “unislamic” cash flows. Both are sent to major depositories in the Middle East and Malaysia and then distributed to Islamic charities for the welfare of Muslims and the promotion of Islam.

“Where is the money being sent and how is it the money used?” Ehrenfeld asked.

For instance, Ehrenfeld explained that the Islamic version of the bond – called sukuk – has qualifications embedded in it to purify the portion of the fund that does not meet Islamic standards. In other words, the wealth created by the corporations that a Sharia-compliant fund may invest in inevitably contains some form of interest, which is against Islamic law. A corresponding per cent of the bond is therefore donated to charity. Clients are not told of the specific purifications – or the names of the charitable organizations on the receiving end the allotment – since the financial instruments are sent to central auditing houses to be purified.

The 88-page report, compiled by law firm Gowling Lafleur Henderson LLP, concluded that Sharia financing would be compatible with Canadian banking regulations and accounting standards if implemented. It noted that Islamic banking measures are offered worldwide, though they generally account for only a small percentage of financial traffic in Muslim countries.

Ehrenfeld questioned whether the introduction of Sharia-compliant banking into Canada and Western countries – according to the Mail Online, assets held by Britain’s $18 billion Islamic banking system tower over Muslim states such as Pakistan, Turkey and Egypt – is not a backdoor method to gradually legitimize the introduction of wider Sharia law into liberal democracies.

“You agree to this, why don’t you agree to the rest? Sharia controls all aspects of life,” she said. “Why should anybody in the West have to abide by Islamic rules?”

She stressed that the most troubling aspect of Sharia banking is how little is actually known about what goes on internally and questioned why a system with so many pertinent questions left unanswered should be allowed to operate in Western countries....
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