Monday, March 17, 2008

Islamic Institution Turns Basic Banking Principles Upside Down

Craig and Marc Kielburger, Special to the Sun
Published: Monday, March 17, 2008

Pervez Nasim may look like an average businessman with his collared shirt, pressed slacks and neatly groomed beard, but when you begin to discuss finances with him it quickly becomes apparent that the similarities end there.

"Maximizing profit is not the most important," he tells us. "Charity and social responsibility are part and parcel with the bottom line."

Nasim is the Chairman of the Ansar Co-operative Housing Corp., a Toronto-based financial institution that strictly adheres to the rules of Islam. He's part of a rapidly growing faith-based financial industry that is turning the basic principles of banking upside down.

From North America to Asia, hundreds of Islamic-inspired banks offer interest-free services that emphasize charity and community over profit, in accordance with the Koran. Once found only in pockets of the Muslim world, growing Islamic wealth and a return to religious values has helped these banks multiply, skyrocketing them to a worth of $200 billion worldwide. "Your thinking has to change," Nasim says of Islamic banks. "Your focus has to change."

With interest forbidden by the Muslim holy book, Ansar turned to an approach that appears similar to a secular co-op, but like other Islamic business models, is rooted in religious beliefs. It purchases homes on behalf of customers, who then pay it back over time by buying shares in the company. Customers live in the homes and pay rent during the process, splitting any gain or loss in the home's value with Ansar.

"The whole Islamic concept of finance is sharing the risk and benefit together," Nasim says. "This is a community organization."

Since 1981 Ansar has sold 700 homes across the country. Despite not being able to charge interest, its success rate is nearly perfect. Nasim says the company only had trouble collecting its money once. He chalks this up to the fact that customers are driven by faith as much as they are by finances.

Ansar has been so successful that it now receives calls from financial institutions in the U.S., Australia and even Saudi Arabia looking to copy it.

Along the way, Ansar has not wavered from what Nasim calls another major tenant of Islamic banking -- social consciousness. It has regular investors looking to help first-time homebuyers, and when one of its customers died in a car accident while paying off his home, the co-op waived its remaining fees for four months to allow his wife to grieve.

"If there is a genuine need, it is our responsibility to help," Nasim explains. "As human beings, we have to look after each other and help each other."

Islamic banks are also careful not to invest in anything deemed unethical by the Koran, such as gambling or alcohol. Ansar soon hopes to invest in a senior citizens' home.

Nasim says the principles of Islamic banking used to draw laughter from those in mainstream banks, but with an annual growth rate topping 10 to 15 per cent, no one laughs any more. In fact, HSBC and other major banks are jumping on board and have opened their own Islamic financial institutions around the world. With stories of people losing their homes amid an impending recession in the United States, alternatives like this one will only become more attractive.

"It's sad," Nasim says of the U.S. mortgage crisis. "On a corporate level, they are on a different planet."

At the moment Ansar is open only to Muslims, a rule Nasim says is in place to cut down on fickle customers only looking to get a good deal on a house. That may change though, as Muslims and non-Muslims alike become increasingly committed to finding ethical ways of investing their money.

"There is a lot of opportunity [in Canada]," Nasim explains. "It's just a matter of time."

Craig and Marc Kielburger co-founded Free the Children. The primary goal of the organization is to free children from poverty and exploitation through education.

© The Vancouver Sun 2008

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