By Lawrence Freeborn

LONDON, ENGLAND – A recently announced study by the Canadian federal mortgage insurer has reignited debate within the Muslim community and among Islamic finance specialists about whether the concept of Islamic banking is acceptable. NewHorizon’s contributing editor, Lawrence Freeborn, talks to industry experts to get the full picture.

Governments in the West are increasingly taking note of the growth of Islamic banking across the world. In the United States, the treasury has recently appointed an Islamic finance specialist, and an Islamic Finance Information Program at Harvard University has lately attracted media interest. In Britain, the government has recently announced its plans to consider the issuing of Islamic bonds, with the hope of attracting investment from the Middle East. Lloyds TSB, a huge high street bank, currently has 200 branches offering Shari’ah-compliant services in the UK.

This activity has encouraged a study into Islamic and other faith-based mortgages, to be conducted by the Canadian Mortgage and Housing Corporation (CMHC), a federal government body which provides mortgage insurance, and this has further stoked debate on the subject. The study aims to determine how much demand there might be for faith-based mortgages in Canada, as well as to consider side issues such as whether the lack of faith-based alternatives is potentially deterring people from entering the market. (This debate looks set to rumble on – a spokesman from the CMHC stressed that the research is not yet under way, and a report may not be produced until the end of this year.)

The Muslim Canadian Congress (MCC), a body which claims to provide a voice for progressive and liberal Muslims everywhere, has ranged familiar criticisms against the concept of Islamic banking in a press release and demanded that the CMHC abandon its study. The MCC essentially makes four points concerning Islamic banking: that it needlessly ‘scares’ Muslims into paying more than they should for banking; that it charges interest by another name; that the scholars, who gain financially by determining what is and is not Shari’ah-compliant, often use the position to promote the products of their employers, and are therefore incentivised to preach against conventional banking; and that Islamic banking marginalises those Muslims who use it by separating their banking activities from the mainstream of society.

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