January 20, 2012
Canada's Muslims struggle to keep faith with financial institutions
Scott Stockdale
More by this author...In an ongoing Toronto court case, evidence has emerged that over $2 million is missing from UM Financial Inc., a mortgage company - now in receivership - that claimed to manage sharia-compliant mortgages.
But it appears that this missing money is the merely the tip of the iceberg, as last March Central 1 Credit Union, which put up $49 million when it formed a mortgage business partnership with UM Financial in 2004, sued UM Financial for $31 million.
Court documents show 172 homeowners were involved with the UM company when it went into receivership in October, and UM was presenting itself as Canada’s leading sharia mortgage firm. This has enraged the Islamic community in the Greater Toronto Area.
Pervez Nasim, Chairman of Ansar Co-operative Housing Corporation Ltd. said he feels sorry for the depositors of the credit union.
“A lot of these depositors are low-income people – retirees, widows and orphans. We get a lot of calls from UM customers worried about what will happen to their homes. Many people are concerned in the community. They've expressed their disgust that all this was done in the name of Islam ... How can somebody claim to be a sharia-compliant company yet conduct its business against the teachings of sharia: to be honest, truthful and to honour your commitments?”
He added that because Ansar is in the same industry as UM Financial, he is very much concerned because “When something happens in your industry, you all get a bad name.”
Mr. Nasim explained the three models of sharia-compliant home ownership that are acceptable to use:
In the diminished partnership agreement, several partners or an institution will purchase a house together. One partner will live in the house and pay a monthly proportionate rent for the rental value of the house, with the understanding that this proportionate rent payable will decrease as this renter/partner increases his or her equity in the house by buying more shares in the house from the other partners/institution. A purchase option is open and can be exercised anytime; every month, every third month, etc., so eventually the renter/partner will own the house outright. At this time, the partners will evaluate the worth of the house and all partners will share in the profit or loss. During this co-ownership period, the legal title remains in the name of all the partners/institution and is transferred only at the conclusion of this diminishing partnership transaction.
Another model consists of one party buying a house and selling it to another at a profit, and often holding the mortgage until the purchaser of the home pays it off. Mr. Nasim explained the Koran says it is acceptable to make a profit trading in commodities, but not money – since it has no intrinsic value - which is why interest on a loan is unacceptable.
A third model consists of a homeowner allowing someone to live in his or her house and pay rent for 10 or 20 years, after which time the renter can purchase the house for a nominal price. The major portion of the house price – which includes profit to the seller - is built-in to the monthly rent/lease payment. Mr. Nasim said this is similar to a lease/purchase agreement on a car.
Meanwhile, UM Financial founder Omar Kalair testified in court that Muslim cleric Yusef Panchbaya, who had once been chairman of UM Financial, was claiming $2.7 million compensation on behalf of himself and four other local clerics. The group said they had given the company free sharia guidance for several years and eventually expected to be paid.
Mr. Pervez said the amount of compensation demanded for the work done makes no sense.
“I don't know anyone with a little bit of intellect who would accept that these sharia opinions are worth $2.1 million. Even $200,000 for five years would be high, but I couldn't challenge that ... It's not a full-time job; only when something happens they would spend one or two weeks per review.”
On September 19, Mr. Panchbaya incorporated Multicultural Consultancy Canada Inc. (MCC), along with the four other clerics, demanding compensation and then applied to have MCC intervene in the court case whereby UM Financial was in receivership.
On September 26, the receiver denied MCC standing, saying no contractual relationship existed between it and UM companies; but on the same day, this didn't stop Mr. Kalair from drafting an invoice for $2.7 million for the clerics.
On Oct. 4, Mr. Panchbaya chose as MCC’s financial manager an Egyptian named Joseph Adam. He is described in testimony as running a business called the Amira Islamic Fashion and Book Centre Inc., at Rexdale Blvd. and Islington Ave. Brampton resident Omar Kalair, founder of UM Financial, has testified in court that he bought $2.2 million worth of gold and silver with UM Financial money and on October 4, at night in a Rexdale parking lot, he gave $2 million in gold to Joseph Adam. Court records indicate Mr. Adam took the gold to Egypt and gave it to Islamic scholars.
Mr. Nasim notes that Mr. Kalair testified in court that Egyptian scholars didn't do any work in any of UM Financial's business dealings, so Mr. Nasim asked why Mr. Adam would give them $2 million worth of gold.
Mr. Adam has been ordered to appear in the Ontario Superior Court of Justice, Commercial Division, to explain himself.
In the same Dec. 29 documents, the court ordered Mr. Kalair, Mr. Panchbaya and Mr. Adam to turn over their cellphone records covering Aug. 30 to Dec. 31, when the gold might have been discussed.