Rising Halal Finance: Catering to Canada’s Growing Muslim Investors

About a decade and a half ago, when Ottawa-based IT specialist Imad Ansari wished to dive into the world of investment, he found the opportunities available to him rather restricted. As a devout Muslim, it was crucial to him that his investments adhered to the Islamic guidelines of halal, built upon the pillars of fairness and equity. However, offerings that stuck to these principles were scarce. Ansari, for many years, found himself selecting individual stocks, and undertaking meticulous research to ensure his financial commitments did not compromise his faith. This process was often more demanding and carried greater risks than investing in well-established mutual funds, bonds, or ETFs.

In recent years, Ansari has observed a significant transformation in the financial landscape. He points to an increasing number of choices tailored to Muslim investors in the mainstream finance sector, such as halal ETFs, which he can now conveniently invest in through his financial institution. Ansari has transferred the majority of his earlier self-directed investments into these types of funds, calling this change a “game-changer.”

Based on data from Statistics Canada in 2021, the Muslim population represented 4.9% of the total Canadian population – more than twice the proportion from two decades earlier. This equates to nearly 1.8 million Muslims, a large number of whom are actively looking for avenues to grow their wealth and secure home ownership without conflicting with their religious beliefs.

Ansari believes there is considerable room for growth in halal financial products. Halal investing, also known as Shariah investing, is required to comply with specific Islamic regulations. These rules necessitate that an investor should not pay or receive interest and refrain from investing in certain sectors such as alcohol, pork, or gambling.

Khaled Sultan, a senior wealth advisor and portfolio manager at CIBC, explains that Islamic finance fundamentally operates on profit and risk-sharing principles. While interpretations of these rules may differ and scholars might dispute some aspects of halal finance, the basic principles of abstaining from certain sectors and avoiding interest-based transactions remain indisputable.

Mohamad Sawwaf, the founder and CEO of Manzil, a financial services firm, perceives halal investing as a subset of ESG (environmental, social, and corporate governance) investing, an investment approach that emphasizes specific values. Manzil, which launched a halal mortgage fund in 2020, has since diversified into wealth management through a robo-advisory platform and estate planning. “We aim to simplify the process of distinguishing between what’s compliant and what isn’t,” says Sawwaf.

Adhering to Islamic principles means that a wide range of financial products and investment vehicles are off-limits, according to Sawwaf. For example, due to the dearth of halal mortgage options, many Muslims in Canada have spent years, if not decades, renting. Today, Manzil’s mortgage program has about 12,000 families on its waiting list and is struggling to raise funds quickly enough to meet the growing demand.

One of the challenges with halal investing has been the prohibition on traditional low-risk vehicles like bonds due to the ban on interest. This resulted in earlier available funds being at higher risk, Sawwaf explains. “If you were a risk-averse investor, that wouldn’t be suitable for you,” he says. “That’s why we introduced our fund, aiming to address the fixed income aspect of those balance sheets, and hoping to launch other fixed-income funds in the future.”

Manzil’s clients can invest not only in the company’s mortgage fund but also in a variety of other funds, some based in the U.S. and some based on Islamic bonds, known as Sukuk. Investing with a company like Manzil enables clients to access investment opportunities based outside of Canada, where there are more options, says Sawwaf.

Sawwaf’s next goal is to venture into the retail finance sector, aspiring to establish Canada’s first full-service halal financial institution.

When Sultan started investing in 1999, he found that advisors were unable to guide him to invest within Islamic principles. “I ended up having to educate myself on both the financial and Islamic aspects,” he recalls.

While the landscape has transformed considerably since then, Sultan still sees immense growth potential, with the demand for halal investing and lending far outstripping the supply. He believes that Canada’s major financial institutions have an opportunity to offer more financial products designed for their Muslim customers.

Despite the growth in the halal finance sector, Sultan sees much room for expansion, as the demand for halal investing and lending far exceeds the supply. He believes that major financial institutions in Canada have a golden opportunity to provide more financial products tailored for their Muslim customers.

Sultan, however, remains optimistic about the future of the sector, drawing a parallel with the availability of halal foods, which were hard to come by in the past but are now easily accessible in grocery stores. Manzil’s mortgage waiting list is a testament to the latent demand, he notes.

“It’s going to be a profitable venture for the banks, creating a win-win situation for everyone,” Sultan concludes.

He advises new investors seeking halal investment opportunities to uphold their values while remembering that pragmatism is also an Islamic value. He also encourages them to make requests to their financial institutions in the hope that more options will become available in the future.

“If enough people express their demand, it’s just a matter of demand and supply,” he adds.