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The 2024 federal budget says the Liberal government plans to introduce “halal mortgages” as a way to increase access to home ownership.
Here’s what “halal mortgage” means and what that effort might look like:
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What does Canada’s 2024 budget say?
The plan mentions the creation of “alternative financing products, including halal mortgages” as a means to “enable Muslim Canadians, and other diverse communities, to further participate in the housing market.”
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Ottawa is “exploring new measures” that could change “the tax treatment of these products” or provide a “new regulatory sandbox for financial service providers,” it says.
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The government began consultations in March 2024 with financial services providers and “diverse communities” as it sets out to expand mortgage policies to include alternative financing, it adds. More details will be made provided in the fall, the budget says.
Why are regular mortgages not considered halal?
Islamic law, or Sharia, prohibits Muslims from charging or receiving interest because they are seen as exploitative and immoral. Instead of giving loans, Islamic banks use different payment structures to avoid charging interest.
What are halal mortgages?
Sharia-compliant mortgages include payment structures that take interest out of the equation. There are three common types of halal mortgages: ijara, Musharaka, and Murabaha.
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Ijara is a rent-to-own model in which a bank buys the asset and leases it back out to the customer over a set period. The payments go toward both the capital and provide a profit for the financial institution.
Musharaka are a form of partnership with the financier, in which both parties own the property and the equity is slowly shifted until the partnership dissolves.
Murabaha is a credit system in which the ownership is immediately sold to the customer, with profits included in the final offer. The buyer’s credit history, deposit and terms of the agreement are factored in.
Because these structures are considered more risky, they are often more expensive than a traditional interest loan. Canada’s big banks do not currently provide halal mortgages, which the Liberal government hopes to change. According to Canadian Press, lack of halal financial options have left many Muslims waiting for smaller firms to allow them to make investments and buy homes.
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