Introducing Islamic Finance in Unchartered Economies: The Case of Canada

Abstract

The primary goal of this paper is to explore the viability of initiating Islamic finance (IF) in an unchartered economy. Canada is taken as a case study for this paper. To achieve our objective, we proceed in two stages. The first stage involves the analysis of market opportunities for IF. More precisely, the first stage involves the cost/benefit analysis which would enable the IF industry to see whether it is feasible for them to initiate. Second, the more challenging stage involves the analysis with regard to the barriers in offering IF products. In other words, we examine whether some of the IF products can be offered in the current regulatory framework. More importantly, we also examined the current banking regulations, which might hinder the offering of IF products, and provide suggestions on the amendments that can be made to ensure the smooth start. Broadly speaking, in this paper, we dispel certain myths surrounding the system such as it is not compatible with the contemporary finance and Muslims exclusivity etc. Based on the demography, established ethical market, existence of Islamic indices and the mutual funds, and its high rank in the Islamicity index, we argue that Canada could be one of the avenues to initiate Islamic financial system. We have also highlighted some of the economic benefits of such system in terms of its impact on economic growth. Additionally, we have also elaborated on how its risk-sharing characteristic and attachment to real economy could be beneficial for Canadian economy in terms of lowering the risk of banking crises and stock market crashes.