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Islamic Financing - The Basic Rules

Islamic or Shariah compliant (interest-free) financing is one of the fastest growing areas of international finance. From minimal use only 25 years ago, Islamic financing is now worth over a trillion dollars globally.   With a large and growing Muslim population in Canada, Islamic financing is becoming increasingly interesting to Canadian financial institutions and may be a way to attract this large and growing demographic to your business.


Under Shariah financing principals, a bank or lender is not allowed to charge interest nor can they charge “administration fees” that are nothing more than thinly disguised interest.  Lenders must structure their financing to meet Shariah principals which mean that they must take a higher level of risk than banks normally assume.  Broadly speaking, if you are looking for Shariah-compliant financing to purchase goods or services, the lender can provide funds in one of three ways: 

i) Buying the goods and reselling them over time at a profit; 

ii) Buying the goods and leasing them over time at a profit; or 

iii) Entering into a partnership with the client and sharing in the profit earned from the goods bought.   

When depositing money in a financial institution, Shariah depositors are not allowed to earn interest but can earn a share of the bank’s profits. 


When it comes to investing, Shariah principals also apply.   For those who follow Islamic financing principals, there are various industries in which one cannot invest (haram).  These include: gambling, liquor, pornography and companies that earn their money from interest.


Ultimately, however, Shariah compliant products are reviewed by Islamic scholars who determine if the product meets Islamic religious requirements (halal).


Articles and papers on Islamic financing written by Lorne Cutler can be found at:

See Link below to Lorne Cutler speaking at the 2010 UFANA conference on Islamic financing in Toronto, Ontario, Canada.

LAC and Associates can help you with Islamic Financing in the following areas:


Ø  Structuring investment funds, mutual funds or select stocks that meet Islamic requirements. 

Ø  Structuring financing acceptable to Shariah-seeking investors both in Canada and abroad.

Ø  Advising domestic lenders on Shariah financing and structuring products.

Ø  Helping investors find Shariah-compliant investment and banking options in Canada.