This entry focuses on the development, current status, and challenges of the Islamic finance sector in North America, with a particular focus on the United States and Canada. Islamic finance, which differs from conventional banking due to its prohibition of interest, is becoming increasingly widespread around the world. However, in the North America, this expansion remains below expectations due to obstacles such as a lack of legal regulations. Islamic financial institutions operating in the US and Canada primarily offer financing for residential real estate, vehicles, and small businesses through Sharia-compliant financial contracts, such as murabahah, ijarah, and musharakah. However, the legal infrastructure supporting these financial instruments is not fully established, and they are offered as “functional equivalents” under existing legislation. A historical analysis of Islamic finance in the US reveals that Amana Funds, established by Saturna Capital Corporation in 1984, was among the early initiatives. In subsequent years, major financial institutions such as HSBC, Citibank, and Standard Chartered made investments in this area. However, limited success was achieved due to the absence of legal regulations. Similarly, LARIBA, established in 1987 to provide interest-free financing, encountered significant structural challenges. The absence of specific legislation regulating Islamic finance in the country is evident, as investment applications are evaluated through institutional mechanisms such as the National Bank Act, the Federal Deposit Insurance Act, and the Truth in Lending Act. A comparable situation exists in Canada, which has a conservative financial system. Financial regulation in Canada is carried out by various federal and provincial agencies, primarily the Office of the Superintendent of Financial Institutions. The development of the sector has been sluggish due to inherent challenges, including the absence of a Sharia-compliant governance framework, legal uncertainties, inadequacies in the regulatory framework, and tax mismatches. The evolution of Islamic finance commenced with housing finance-oriented products, with the Islamic Co-operative Housing Corporation, established in Toronto in 1979, representing one of the inaugural formal initiatives in the sector. During the 1990s, new financial institutions of a similar nature were launched in Quebec and Ontario. In 2004, UM Financial Group was founded, specializing in Islamic mortgages and pioneering large-scale housing investments through mudarabah financing. However, the company’s bankruptcy in 2011 set a negative precedent for the sector. Despite these challenges, Canada ranked 37th globally in the 2022 Islamic Finance Country Index. It is imperative for financial regulators in Canada to surmount legal and tax impediments to facilitate the increased competitiveness of sharia-compliant financial services in the future.

Islamic Finance in North America

动态工具书词条
发表日期：

2025年

查看全文

Murat Ustaoğlu

摘要

This entry focuses on the development, current status, and challenges of the Islamic finance sector in North America, with a particular focus on the United States and Canada. Islamic finance, which differs from conventional banking due to its prohibition of interest, is becoming increasingly widespread around the world. However, in the North America, this expansion remains below expectations due to obstacles such as a lack of legal regulations. Islamic financial institutions operating in the US and Canada primarily offer financing for residential real estate, vehicles, and small businesses through Sharia-compliant financial contracts, such as murabahah, ijarah, and musharakah. However, the legal infrastructure supporting these financial instruments is not fully established, and they are offered as “functional equivalents” under existing legislation. A historical analysis of Islamic finance in the US reveals that Amana Funds, established by Saturna Capital Corporation in 1984, was among the early initiatives. In subsequent years, major financial institutions such as HSBC, Citibank, and Standard Chartered made investments in this area. However, limited success was achieved due to the absence of legal regulations. Similarly, LARIBA, established in 1987 to provide interest-free financing, encountered significant structural challenges. The absence of specific legislation regulating Islamic finance in the country is evident, as investment applications are evaluated through institutional mechanisms such as the National Bank Act, the Federal Deposit Insurance Act, and the Truth in Lending Act. A comparable situation exists in Canada, which has a conservative financial system. Financial regulation in Canada is carried out by various federal and provincial agencies, primarily the Office of the Superintendent of Financial Institutions. The development of the sector has been sluggish due to inherent challenges, including the absence of a Sharia-compliant governance framework, legal uncertainties, inadequacies in the regulatory framework, and tax mismatches. The evolution of Islamic finance commenced with housing finance-oriented products, with the Islamic Co-operative Housing Corporation, established in Toronto in 1979, representing one of the inaugural formal initiatives in the sector. During the 1990s, new financial institutions of a similar nature were launched in Quebec and Ontario. In 2004, UM Financial Group was founded, specializing in Islamic mortgages and pioneering large-scale housing investments through mudarabah financing. However, the company’s bankruptcy in 2011 set a negative precedent for the sector. Despite these challenges, Canada ranked 37th globally in the 2022 Islamic Finance Country Index. It is imperative for financial regulators in Canada to surmount legal and tax impediments to facilitate the increased competitiveness of sharia-compliant financial services in the future.