STANDING COMMITTEE ON FINANCE
COMITÉ PERMANENT DES FINANCES
[Recorded by Electronic Apparatus]
Monday, October 16, 2000
The Chair (Mr. Maurizio Bevilacqua
(Vaughan—King—Aurora, Lib.)): I'd like to call the
meeting to order.
This is meeting 88 of the Standing
Committee on Finance, and the order of the day is Bill
C-38, an act to establish the Financial Consumer Agency
of Canada and to amend certain acts in relation to
It is a pleasure to have with us individuals from the
following organizations: Islamic Financial
Institutions, Canada; Canada's Association for the
Fifty-Plus; as an individual, Mr.
Turley-Ewart; and the Canadian Association of Insurance
and Financial Advisors.
We will begin with the chairman of the Islamic
Financial Institutions, Canada, Mr. Zafar. Welcome.
Mr. Said Zafar (Chairman, Islamic Financial
Institutions of Canada Committee): Thank you very
First of all, it is a great pleasure to see you again,
The Chair: Likewise.
Mr. Said Zafar: As I wrote to you, in general we
are pleased with some of the legislative measures
proposed in Bill C-38 but feel disappointed that our
presentation for the need for Islamic financial
institutions seems to be largely ignored.
We presented our community's needs to Mr. Harold MacKay
and to you. What we have asked is that the banks
could establish, should they deem it financially
viable, community-based banks within their current
structures, Islamic banking windows with services
tailored to the needs of a specific clientele.
As you are no doubt aware, the comptroller of the
currency of the United States has recently issued
an interpretative letter declaring that murahaba,
which is a markup basis accounting, is
permissible banking activity within federal banking
law. Accordingly, national banks may engage in this
type of financing to meet the financing needs of
In view of the above and the recent ruling of
the Minnesota County Board of Commissioners approving
interest-free real estate contracts, I would appreciate
that favourable consideration be given to our most
We Muslims number over 500,000, the third-largest
religious community in Canada, and our standard of
living is above average. I do not think I need to
familiarize you with these demographic details. You
are quite aware of the growth of the Muslim population
in Canada, and we are looking forward to progressive
At this time I should also support your Bill C-38
in regard to holding companies. The legislation would
introduce for the first time provisions to allow
for the creation of regulated, non-operating holding
companies that offer financial institutions the
potential for greater operational efficiency and
That is all very well. Why don't we have a subclause
in there that should they decide to have an Islamic
financial institution as a holding company, they should
be allowed to do so? I fail to understand why this has
been missed. It is completely ignored.
The reason I am so disappointed is because Mr. Harold
MacKay stated in his findings,
“I do not find any difference between our system and
your Islamic banking system.”
I said if you have any religious worry
about it, I am willing to remove the word “Islam” from
As you all know, the Canadian economy is based on free
enterprise. Major economic decisions are shaped by the
economic forces of demand and supply, profits, markets,
and competition. Given the anticipated demand for
Islamic institutions offering Islamic financial
products, there is a need for such an institution in the
Canadian financial market.
The Islamic bank is not
just a bank, but also an investment company or
investment fund. With the current trend towards
providing one-stop shopping for financial services,
there is an even greater need to integrate Islamic
financial product offerings in the market for financial
services in Canada. Islamic financial products offer
such a niche market.
Recent years have seen a significant shift in the
investment choices and patterns of Canadian investors and
a definite increase in equity participation. Given the
equity-based nature of Islamic financing, it will be in a
major way a significant source of working
capital for small and medium-sized business.
Furthermore, the stable investment climate in Canada—and I would
like you to think about it—has appealed for
international investors, especially from the oil-rich
Middle East countries. The presence of Islamic
financial institutions in Canada would act as a
stimulus and offer the potential for attracting foreign capital into
We again submit to you—as we submitted before—that
Islamic financial institutions be allowed to establish
in Canada as regulated financial institutions and offer
financial products. If this is somehow not possible,
could you possibly consider permitting conventional Canadian
banks and financial institutions to cater
to the niche market and offer Islamic financial
products in Canada at their retail branches through
What I am suggesting is that you give the banks, some
banks... We are in the process of discussions with two
banks, and they tell us that the regulatory framework at
the moment would not allow us. So I come here to appeal
to you to allow the banks, with your Order in Council or
whatever methodology you want to use, to provide
services through an Islamic banking window. This is
all we have come here to ask.
Mr. Saleem Ansari, who is the
president of Ansarco, a leasing company, does 100%
of his business on an interest-free basis on a leasing
arrangement, and he is prosperous.
We have Islamic cooperative housing that we started
10 or 12 years ago with zero money. I had to put some
of my savings into it to start. Now the total
assets are over $30 million. That is only in Ontario.
We are opening up cooperative plants in Alberta and British
Columbia. In Quebec we have housing on a non-interest
So, ladies and gentlemen, I beg of you, I plead to you
to have a regulation that allows our banks, should
they desire to have an opportunity in this
niche market, to open an Islamic banking window.
Bill C-38, commendable as it is, has missed the
opportunity of mentioning anything about this.
Thank you very much.
The Chair: Thank you very much, Mr. Zafar.
We'll now hear from the Canadian Association for the
Fifty-Plus, Mr. Rolf Calhoun, Ottawa representative.
Mr. Rolf Calhoun (Ottawa Representative, Canada's
Association for the Fifty-Plus): Good afternoon, Mr.
Chairman, members of the committee and guests.
I would like to bring to your attention the following
CARP is Canada's Association for the Fifty-Plus, the
largest national association of mature Canadians in our
country, representing nearly 400,000 members across
Canada. Our members are 50 or older, many of whom are
working, while others are retired. A non-profit
organization, CARP receives no operating funds from any
level of government, in order to maintain our
independence and autonomy.
Our mission is to express the concerns of mature
Canadians, and indeed of all Canadians, regardless of
age. Our mandate is to provide practical
recommendations for the issues we raise.
We also provide information of interest to fifty-plus
Canadians through our award-winning magazine
CARPNews/FIFTY-PLUS, which looks like this and has
a content that resembles Macleans in many ways.
We also operate a website called
www.fifty-plus.net. As well, members have access to a
number of discounted savings,
such as home and auto insurance, health and
dental coverage and travel programs.
Turning to Bill C-38, we think Bill C-38 is a
badly presented omnibus bill packing too many subjects
under one proposed piece of legislation, even though
some of the proposed changes are for housekeeping
Nevertheless, as written, the bill is certainly not
consumer friendly. Indeed,
we hope that the proposed financial consumer
protection agency will be far more consumer or user
friendly than the bill that has been written to
Bill C-38 is extremely difficult for consumers to
navigate, and this could give rise to unwarranted suspicion
about the nature of its content. There is neither
index nor easily identifiable division of subject
matter. The clauses are not in sequence. The language
is designed for lawyers, not people. There is no
executive summary to guide consumers through the bill.
With respect to the consumer protection agency,
we nevertheless support the notion of a financial
consumer protection agency in principle, but only if it
is easily accessible by consumers. That is to say, it
needs to be broadly
publicized and without costs or fees for those who wish
to access it. We are not sure that voluntary codes of
conduct go far enough to protect consumers against the
problems that consumers encounter with the current
banking systems, such as delays—and this is a very
common complaint—delays in transferring funds from one
financial institution to another. Perhaps you've seen
it. I know I have. I think most Canadians have.
CARP does not believe that the maximum penalty for
violations of $50,000 committed by a natural person and
$100,000 by a financial corporation is high enough,
especially for financial institutions. Furthermore, we
ask, what are the types of violations intended for
the proposed agency to consider? In any case, can violations of a
voluntary code of conduct be prosecuted by government?
As we understand it, the
proposed amendments to the Bank Act are intended to
establish the rules for bank mergers and in this
regard act as a green light for bank mergers, which
your government, I might say, Mr. Chairman, so vigorously
opposed and denied just a short while ago. What has
changed your government's opinion on this matter since
then? Moreover, allowing one owner up to 20% of equity
in a bank, up from 10%, in financial terms represents a
very high degree of concentration and opens excessive
centralized control of an essential aspect of the
Furthermore, as we understand it,
the amendments allow insurance companies to set up
banks and foreign banks to purchase Canadian banks.
This will create a dangerous situation because of the
relatively small size of the Canadian economy.
We do not oppose foreign banks from operating in
Canada, but we are concerned if they are permitted to
own or control Canadian banks.
CARP's recommendations for
Bill C-38 are that Bill C-38 should be redrafted in a
consumer-friendly and accessible manner because of the
importance of the subject for Canadian consumers,
regardless of age, and the Canadian economy as a whole.
This is important legislation; therefore, the omnibus
nature of the bill should be revised by dividing the
bill into its appropriate constituent parts. In
particular, those clauses dealing with the new rules
for bank mergers should be treated as a separate bill
to enable more focused public discussion on this issue.
A well-publicized and easily accessible consumer- or
user-friendly financial consumer agency should be
established. This action should be treated as a
separate issue from the proposed rules for bank
In regard to bank mergers, the degree of concentration
of ownership proposed in Bill C-38 should be reduced.
The amount for penalties for violations should be
increased. And foreign banks should not be allowed to
own or control Canadian banks. This will ensure
made-in-Canada financial policies by banks.
Adherence to banking rules for nationally registered
banking institutions should be mandated and monitored
by the federal government, rather than being voluntary.
Thank you, Mr. Chairman. I would invite inclusion of
this brief in the minutes of the committee. To that
end, I have a few copies to give to the clerk.
The Chair: Thank you very much, Mr. Calhoun.
We'll now hear from John Turley-Ewart, Canadian
Mr. John A. Turley-Ewart (Individual Presentation):
I recently completed a history of the Canadian
Bankers Association as my doctoral thesis at the
University of Toronto. What I'll try to do today
is give you some historical context in which Bill C-38
perhaps can be seen.
All Canadian governments, beginning with Sir John A.
Macdonald's, have struggled with demands for a
competitive and safe banking system that guards
consumers, the economy, and the federal treasury from
the fallout caused by bank failures.
The politics of banking is not a modern phenomenon.
By the time the Bank Act was enacted in 1871, two
finance ministers had resigned, regional tensions had
flared, and the manager of the Bank of Montreal, a
dynamic Irishman, had retired.
The concerns Macdonald faced in 1867 persist today.
Between 1871 and 1924 our banking legislation gave
banks free reign and insulated Ottawa from any legal
claims for assistance arising out of bank failures.
Politicians and bureaucrats had decided their policies
could be achieved by leaving banking to bankers. The
result, on one hand, was a dynamic banking sector that
grew quickly and without regulation. It served the
economic needs of an emerging national economy and
helped fuel the economic boom that began in 1896 and
continued to 1913. It also helped the federal
government survive the unprecedented fiscal crisis that
began with a sudden march to war in the summer of 1914.
But bankers could not reconcile competition and
safety. A legacy of their failed attempt is with us
today, the Canadian Bankers Association. One bank
failure almost every two years during the late 19th and
early 20th centuries raised popular demands for
intensive government regulation. There are many CCBs
and Northland Banks in our history.
Finally, in the aftermath of the Merchants' Bank
scandal of 1922 and the Home Bank collapse in 1923,
bankers faced their own crisis of confidence and the
Liberal government of Mackenzie King responded by
founding the office of the Inspector General of Banks.
Ottawa's responsibility was widened, the Bank Act was
enforced, and by the end of the 1930s the three, six, and
three era in Canadian banking was on the horizon;
that's 3% for deposits, 6% for loans, 3 o'clock on the
The innovation that characterized Canadian banking for
more than half a century seemed to be lost and with it
a great deal of the popular respect bankers had once
enjoyed. Since then the trend, which began to
accelerate in the late 1960s, has been toward
restoring the flexibility that Canada's chartered banks
lost when the Bank Act was first enforced in 1924.
While I have spoken of a bygone era, I want to leave
you with what I believe the past has to say about the
future, an issue that is at the heart of Bill C-38.
I wonder if you recognize any of the following banks:
Bank of New Brunswick; Bank of Ottawa; Bank of
Hamilton; Banque du Peuple; Bank of British Columbia;
Metropolitan Bank; Standard Bank; Union Bank of
Halifax; The Merchants' Bank of P.E.I.; Quebec Bank; The
Union Bank of Canada. The list goes on. All of
these banks and the competition they fostered
disappeared from Canada's main streets because they did
not successfully pursue new opportunities to grow and
flourish. There was nothing to have stopped them
except the shortcomings of their managers.
Today, what often prevents our surviving banks from
pursuing new opportunities is a regulatory environment
that we, as a society, impose upon them. If competition
in the financial sector is to flourish, if our banks
are to create high-value jobs for future generations,
if they are to improve their ability to serve our
economy's needs as it evolves, if we, as a society, are
to temper the politics of banking that was so evident
during the 1998 merger debate, banks need more
flexibility than is currently being proposed.
Citibank's acquisition of Associates First Capital Corporation,
a $100-billion consumer finance company with 350
branches in Canada, will extend the New York based
bank's global reach as well as its resources if the
investment is well managed. Under Bill C-38 a Canadian
chartered bank would be discouraged from making such an
investment. We need to encourage our banks to seize
new opportunities, rather than leave them on the
sidelines to watch others.
Perhaps some of you will be surprised to learn that
many banks distributed insurance through their branches
until 1923. It provided one means for the banks to
secure well-qualified staff, especially in rural areas,
by promising more attractive wages. Insurance
companies prospered, and consumers could have all their
financial needs met at a local bank branch if they
Prohibiting banks from distributing
insurance through their branches puts them at a
tremendous competitive disadvantage. It seriously
complicates the business of selling financial planning
services, and it cuts off revenue streams that affect
retail banking operations across the country.
Just this year the Bank of Montreal sold 54 of its
branches in western Canada to a credit union. The
credit union can make the branches pay by distributing
insurance and doing car leasing.
Bolstering competition depends to a very great extent
on legislation that allows our chartered banks to
evolve with the changing needs of consumers and the
economy. Bill C-38 goes some way to accommodate this
reality, but it needs to go further. It is time the
banks returned to the business of distributing
insurance and for consumers to have the choice of
leasing a car from their local bank branch if they want
to. It is also time to speed up the process of giving
back to banks the flexibility they need to invest in
new ventures that will help them and the Canadian
economy grow. Such change, especially around permitted
investments, comes with risks, but refusing to manage
those risks through OSFI, which has taken on a more
interventionist role since 1996, suggests an overly
cautious approach to reform that will have long-term
consequences for Canada's banks and the quality of jobs
they will produce and support.
The Chair: Thank you very much, Mr. Turley-Ewart.
Now we'll hear from Mr. David Thibaudeau from the
Canadian Association of Insurance and Financial
Mr. David Thibaudeau (President and Chief Executive
Officer, Canadian Association of Insurance and
Financial Advisors): Thank you, Mr. Chairman.
The Canadian Association of Insurance and Financial
Advisors appreciates this opportunity to provide the
finance committee with our comments on Bill C-38. CAIFA
is a not-for-profit professional organization
representing 18,000 financial services advisers who are
committed to putting client interests first. CAIFA's
members provide financial advice as well as market and
sell products from many types of financial institutions
in Canada, from life insurance companies to mutual fund
companies to banks.
With regard to just one of those sectors addressed in
Bill C-38, the life insurance industry, CAIFA's members
sell the majority of life and health insurance and
wealth accumulation products in Canada. In 1998 those
products included 847,000 individual and group life
insurance policies totalling $194 billion in coverage,
plus more than $17 billion in annuities, thereby
providing risk management and investment solutions for
22 million Canadians. In terms of demographics and
coverage, almost half of individual life insurance
policies purchased by Canadians in 1997 were bought for
individuals with incomes under $30,000 a year, with
three in four Canadian households owning some form of
life insurance protection.
As members of this committee are well aware, Bill C-38
is the culmination of many years of research and
consultation by a variety of bodies, from the MacKay
task force to the finance department to this very body.
Bill C-38 has been a long time coming. It is no
surprise, therefore, that major stakeholders, including
CAIFA, have welcomed this legislation and called for
its speedy approval. It should also come as no
surprise that we are quite disappointed that this
legislation may be a casualty of a rumoured fall
election. If this legislation does in fact die on the
Order Paper, CAIFA would ask all parties to support the
speedy reintroduction of Bill C-38 as soon as a new
I would now like to highlight some of CAIFA's comments
on the legislation before this committee, focusing on
the areas of consumer protection, business powers, and
One of the important consumer
protection measures contained in Bill C-38 is the
creation of the Financial Consumer Agency to enforce
the consumer-oriented provisions of the federal
financial institutions statutes. We believe this agency
has an important role to play by helping to ensure that
consumers actually benefit from the protection measures
contained in those statutes.
One of the key consumer
protection measures to be enforced by the FCA will be
the newly strengthened section 459.1 of the Bank
Act, which deals with coercive tied selling. As
studies by the MacKay task force and this committee
have concluded, coercive tied selling is a prominent
consumer protection issue since it puts into stark
relief the issue of bargaining power between consumers
and institutions or intermediaries.
Mr. Chairman, since our full submission deals with the
issue of tied selling in more detail, for now I would
just recommend that the new agency make the
elimination of tied selling a top priority.
A logical complement to the FCA is a visible and
independent financial sector ombudsman with the power
to assist consumers with obtaining redress from
financial institutions. CAIFA therefore welcomes the
establishment of a Canadian Financial Services
Ombudsman. The ability of the CFSO to identify
consumer abuses, such as coercive tied selling, and to
recommend appropriate reparations is a welcomed
addition to the regulatory framework.
Consistent with our earlier recommendation, CAIFA
also recommends that the new CFSO pay special attention
to the issue of coercive tied selling and the
considerable challenge of empowering consumers to come
forward with detailed cases of their experiences in
As the government has acknowledged,
these proposed measures to empower consumers will take
some time to become fully effective. It has therefore
accepted this committee's recommendation that no new
business powers in the area of insurance networking be
extended to banks at this time. CAIFA supports this
decision. As our full submission indicates,
research indicates that Canadians are well served by
the current agent-based distribution system.
Let me conclude with a word about corporate
taxation, which I realize falls more logically under
the heading of prebudget but which is an important
factor in how Canada's financial services sector
operates. In past submissions CAIFA has expressed
concern that Canadian corporations face a greater tax
burden than their American counterparts, with
businesses in the service sector taxed as much as 50%
higher than those in the United States. The 2000
federal budget's plan to reduce the general federal
corporate income tax rate from 28% to 21% over five
years will go some way toward addressing this
disparity, but we remain concerned about the slow pace
of corporate tax reduction. Indeed, in five years' time
Canada's corporate income tax rates will remain among
the highest in the world even if other countries do
not reduce their rates even further, an unlikely
While CAIFA acknowledges the challenges posed by joint
federal-provincial jurisdiction on the issue of
determining capital taxes for financial institutions,
the association would suggest that the issue is urgent
enough to warrant considerable effort.
In conclusion, in an increasingly competitive
financial services marketplace, strong and
internationally competitive Canadian financial
institutions bring benefits to all Canadians, from
employment to tax revenues to better business ideas.
But global ambitions must not be allowed to obscure the
true origin of the success of Canada's financial
institutions: the confidence and patronage of Canadian
depositors, borrowers, investors, and policy holders.
The measures contained in Bill C-38 that foster
domestic competition and empower consumers are key to
the long-term success of the financial services
CAIFA wishes to reiterate its support for this
legislation and its recommendation that this committee
approve Bill C-38 so that Canadians may enjoy the
benefits of a more competitive and consumer-friendly
financial services marketplace.
Thank you, and we are prepared to answer questions.
The Chair: Thank you very much, Mr. Thibaudeau.
We'll now go to the question and answer session.
We'll begin with Mr. Harris. We'll do a five-minute
Mr. Richard M. Harris (Prince George—Bulkley Valley,
Canadian Alliance): Thank you, Mr. Chairman.
Mr. Thibaudeau, I share your fears that an
election may kill this bill, because this bill was
going to bring some certainty
to some of the things your industry has expressed
alarm about, particularly in regard to banks
retailing insurance products through their branches.
I know that you know we have agreed in this
regard, and we're fully supportive of the things
you've said today.
One of the concerns we had in Bill C-38 was the
incredibly broad range of powers that were given to one
person, namely the Minister of Finance. Has your
industry expressed any alarm about this? There is
plenty of regulation in the industry now, and for the
most part it has operated very well with the help of
the Competition Bureau and under the Bank Act and OSFI.
It seems as though bill is going well beyond what's
needed, and there could be a tremendous amount of
overlap in scrutiny and in decision-making throughout
the industry if the minister is given this power. How
do you respond to that?
Mr. David Thibaudeau: It hasn't been a big issue
for us in terms of looking at the size of this
legislation. We've focused on the areas that
we feel impact on the financial adviser level
more than at the corporate level, where those
decisions can get made. We really don't have a
strong position on that one way or another.
Mr. Richard Harris: Okay, thank you.
I want to
ask Mr. Zafar a question, if I could. I thank you for
your presentation, and I really have to apologize,
because probably everyone else in the room here knows
what Islamic financial products are all about except
me. Can you give me some significant differences, the
difference between your Islamic financial products and
conventional financial products?
Again, I apologize, but I'm
looking forward to being informed.
Mr. Said Zafar: We are only one billion people and
a lot of people still don't understand Islam.
There are 1.1 billion
Muslims around the world and 500,000 in Canada, and still
we are asked the same question time and time again. It is a
pleasure for me to answer. I'm glad you asked
As Mr. Harold MacKay said, there is no difference
between Islamic finance and our system. The only
difference is that in Islamic finance basic fixed
interest is not allowed. Any interest-based dealings
are not allowed. This is based on the Old Testament.
It is based on Jesus Christ going
to the temple. Interest is forbidden.
the principle has evolved to four different
methodologies: one is murahaba,
where you buy the thing and put on
costs plus. Mudaraba is trust financing:
you appoint me as your trustee and you give me
authority to trade or do whatever as your adviser.
Then ijara—leasing—is exactly the same as the
one without interest. That is Islamic banking.
Mr. Richard Harris: Okay.
Mr. Said Zafar: The problem we have here, and it is
written—I have sent you all the details about
murahaba, mudaraba, and
musharaka. The fourth principle is that
profit-sharing... what was known in the olden days as
merchant banking. That is what musharaka is.
These four concepts are loosely called Islamic
If you find any difference
between our system and Islamic finance, except the
interest basis, I don't see any.
But the word “Islam” scares the shoes off people. I'm
telling you, I have lived in Canada for forty years,
and for forty years Islam has created, because of the
happenings in the Middle East political situation... They
bring it back to it. They never say that Islamic
countries are peaceful, or things like that. But
that's the way it is.
On behalf of the Committee on Islamic Financial
Institutions, as the chair, I am willing to take, if
any one of you have the word “Islam” out in
non-interest-based financing... I only want you to
allow us, please, to have some banks at regulation that
can, should they want—naturally, banks won't go on a
charity basis—to have Islamic banking windows.
Islamic banking windows are in England, Switzerland,
Holland—I'm talking about western countries—and in
Muslim countries, Egypt, United Arab Emirates... You
must be wondering why they allow Islamic banking
windows and not the full Islamic bank. Look,
our system is so good we'll have the interest-free
system and the non-interest system compete in a free
competition. That's what it is.
Mr. Richard Harris: Thank you.
The Chair: Thank you very much.
Mr. Roy Cullen (Etobicoke North, Lib.): Thank you,
Mr. Chairman, and thank you, witnesses.
I wanted to pick up on one point, Mr. Zafar. Mr.
Harris said the rest of us must know all about this. I
have a confession to make: this is the first I've been
acquainted with the issue. I'm quite curious.
In this bill the intent is to lower the hurdles in
terms of establishing a bank and also for
community-based banking. What you've described is
somewhat akin to merchant banking, as you've pointed
out. Is there something in the legislation, the Bank
Act now, or what we propose in Bill C-38 that would
preclude an Islamic bank?
Mr. Said Zafar: No. The question is there's a
section on holding companies. I'll read it to you, the
summary of key legislative measures, statement of
government policy, holding companies:
The legislation would make amendments to introduce, for
the first time, provisions to allow for the creation of
regulated, non-operating holding companies that offer
financial institutions the potential for greater
operational efficiency and lighter regulation.
And it goes on. Have you mentioned the word
“Islamic”, such as Islamic banking, where they can
indulge in it?
Mr. Roy Cullen: There is nothing... If there were
a holding company structure—a wholly owned subsidiary,
for example, could be what we might call a merchant
bank, which you would call an Islamic bank—why would
you need to mention the word “Islamic”? I guess what
I'm saying is where is the section of the act that
would preclude you setting up a bank along the lines
Mr. Said Zafar: My opening statement was that Bill
C-38 omitted the words “Islamic bank”.
Mr. Roy Cullen: But I suppose by the same token
omitted a number of references to a whole range of
different types of banks.
Mr. Said Zafar: Why not Islamic banks?
Mr. Roy Cullen: I guess my question is—
Mr. Said Zafar: Sir, I'm asking a question.
I'm supposed to be... Why not Islamic banks?
I presented twice, once with Harold MacKay, when I had
a two-hour discussion with another person with me, and
with this chairman in Brampton, with another lawyer
with me, and we pleaded. We have come all the way from
Toronto, this time bowl in hand. Please consider this.
What is wrong with putting “Islam”?
Mr. Saleem Ansari (Member, Islamic Financial
Institutions of Canada Committee): Mr. Chairman, with
your permission, it is not the name as such that's
important. It's the basis on which the banking
In Canada, the States, and western countries, the
basis of financial transactions is interest. Without
interest, you cannot enter into financial transactions,
and that's where we have a problem. What we are
looking at is to allow a financial institution to be
based on profit sharing, on equity participation,
rather than on interest.
If we look at the Bank Act, the Credit Union Act,
or any other act that allows the establishment of any
financial institution, whether on a national or
provincial level, they require interest as the basis.
That's where we have difficulty, because interest
is not allowed in our religion.
Mr. Roy Cullen: I understand that, but is there
something in the legislation that says you must charge
interest? Where does it preclude the banking you're
Mr. Saleem Ansari: How else can you open your
Mr. Roy Cullen: So the context you're talking
about, then, is deposit-taking?
Mr. Saleem Ansari: Exactly.
Mr. Roy Cullen: Your banks don't take deposits.
Mr. Saleem Ansari: No, we do take deposits, but
without any interest. We charge service charges.
Mr. Roy Cullen: Okay. Is there something in the
Bank Act or in Bill C-38 that says you must charge
Mr. Saleem Ansari: Well—
Mr. Roy Cullen: I'm going to certainly take it up
with the department. Maybe the chairman is more
apprised of this than I am, but I'm surprised.
The Chair: I was going to ask what the service
Mr. Said Zafar: I beg your pardon?
The Chair: What would you charge an individual to
open an account?
Mr. Said Zafar: What do we charge? I'm going back
to what the current practice is in Islamic banks. We
have different rates—2%, 0.5%, 3%, 5%—for service
charges on deposits, non-refundable deposits.
The Chair: Okay.
Mr. Said Zafar: It's as low as 0.5%. In some
places, in Malaysia for example, there is 0% interest
Mr. Roy Cullen: I'll go through your brief in
detail, but if there are specific provisions of the
Bank Act or Bill C-38 that preclude the establishment
of a bank along the lines you've described, if you
could highlight those for me, I'll certainly take it up
with the department.
Mr. Said Zafar: Sure.
Mr. Roy Cullen: Thank you.
Mr. Chairman, I just have a short question
for Mr. Turley-Ewart.
Thank you for your brief and for your insight into the
history of our banking system.
One question I had is around banks selling insurance
through their retail branches. Something that has
always puzzled me—and I've put it to bankers and
insurance people that have come to this committee—is
that when you're selling insurance, for example if over
the counter at a bank I'm selling a term policy,
I fill in the forms—$100,000, the
beneficiary—and that's the end of the story. But if
I'm selling insurance as part of a financial plan, then
there are questions around whole life, around
annuities, around term, and that's why we have
certified financial planners.
I can understand, for example, for main branches in
downtown Toronto, Montreal, or Vancouver, but if I have
a branch in some small centre in rural
Canada, are they going to be able to offer that sort of
expertise if they are selling insurance? If someone
comes into a branch, are they going to have certified
financial planners who can offer the full... The idea
of just selling a term or a whole-life policy without
looking at it in the context of a whole financial plan
doesn't make an awful lot of sense, in my mind.
Mr. John Turley-Ewart: Right. When I refer to the
three, six, and three era in Canadian banking—and
this is the period that basically started in the late
twenties and really took off in the thirties and
forties—that was where the government regulated the
maximum you could charge on a loan for a bank at 6%.
Three percent was the rate that you got on a
deposit, and the old line was “and it's three o'clock
on the golf course”. You didn't have the expertise;
you didn't need to build that kind of expertise to sell
Banking is changing so rapidly in many ways, and in
very good ways. We have new delivery systems now.
There are new revenue streams coming into branches,
which means you can hire—for lack of a better
word—better-educated staff, and staff who can deal
with issues like financial planning. You need
financial planners in Pembroke, in Quinte, and in small
towns throughout this country.
But if you prevent the banks from selling insurance,
what in essence you're doing is you're cutting off a
revenue stream, and it prevents the bank from paying
the kinds of wages that would attract a person who has
the financial education to sell insurance products.
So it's a vicious circle. When we talk in Bill C-38
about how we want to increase competition, it's a
rather funny thing that we prevent the banks from
retailing insurance, but at the same time we promote
the bill as increasing competition. From what my
neighbour here was saying on how much of the market
they have, it seems to me that it's time for the
banks to get back into this business, just for the sake
Mr. Roy Cullen: Do I have time for one quick
The Chair: Yes.
Mr. Roy Cullen: Thank you, Mr. Chairman.
Mr. Calhoun, from CARP, you say in your letter... I'm
sorry, I don't know if it's reflected in your
brief, but in CARP's letter of August 10... Are you
familiar with that letter to the committee?
Mr. Rolf Calhoun: I don't have that with me, I'm
Mr. Roy Cullen: It basically says:
As we understand the amendments to the Bank Act, they are
intended to establish the rules for bank mergers, and
in this regard, are a green light for bank mergers,
which your government so vigorously denied a few years
ago. What has changed your government's opinion
on this matter since then?
It's signed by Ms. Morgenthau, your president.
Could you comment on her statement? I'm just
wondering what would lead someone to that conclusion,
because we want to set the rules, you know,
institutionalize, if you like, the rules so that it's
not quite as ad hoc as it was the last time. Does CARP
interpret that as a green light for bank mergers?
Mr. Rolf Calhoun: I think it would probably be
good for me to not try to intuit precisely what she
might have been thinking at the time, because frankly I
have not discussed it with her personally in
preparation for this presentation today.
Mr. Roy Cullen: Thank you.
The Chair: Thank you.
Ms. Pauline Picard (Drummond, BQ): Mr. Zafar, I'm a member of
this committee and this is the first time I've heard of Islamic
financial institutions. I didn't quite grasp how they operate. You
stated that your religious code prohibits interest-based dealings,
but that you debit funds upon opening an account to cover
administrative feeds. When your clients entrust their savings to
your institution, no doubt they receive rebates or dividends. They
want to see their assets grow.
When you award loans, you are undoubtedly required to collect
a fee of some kind to cover your administrative costs, including
personnel costs. If that isn't charging interest, what is it?
Far be it for me to offend you, but aren't you simply playing
a word game by talking about fees, rather than interest? I'm trying
to understand how your institutions operate. I once worked in a
financial institution, a Quebec co-op, which charged administrative
fees. I can understand that. We gave rebates to our members.
Depositors want to see their money grow. What do you do to attract
customers? How does your institution operate?
Mr. Said Zafar: I'm very glad you asked that
question. You asked about five or six questions, so
let me answer them one by one, beginning with the one
on how the deposit insurance works, and on deposit
The Islamic bank is based on the following type of
deposit: murahaba. Suppose I have
$100 in my pocket that I want to put on a fixed
deposit. I come to you as a banker and say I want to
make a deposit. When you put the deposit in, the
banker asks you—in this case, you are asking me—what
profit you want. Is it 100%, 200%, or what? Depending
on what your request is, he makes an investment of that
money in that deposit. On that profit and sharing
basis, $100 is put on opening a hamburger stand on a
profit-sharing basis of 50-50, 40-60, 30-70, or
whatever it is. From those charges, that 50-50, it is
stipulated that administrative charges, which you
referred to in your second question, are handled.
Administrative charges are shared by the first 50% and
the other 50%. The bank makes a profit on the
administrative side, and then it is done. So that is
the first question.
Your second question is on dividends. Dividends in
the Islamic banking system are some of the most
lucrative things. I'll give you a stat. There's an
association of Islamic banks. There are 57 Islamic
banks that are members of that association. They did a
survey of all the annual reports of the Islamic banks,
and the average short-term investment return is 22.5%.
How do they make it? It's simple. They make vigilant
investment choices and they make dividends for the
In the Islamic Cooperative Housing Society—which
is based on an Islamic basis in Mississauga,
Ontario, now that we have changed the head office—I
don't own a house on an interest basis, I paid cash.
What I now do for my savings is invest in the Islamic
Cooperative Housing Society. For the last ten years,
my investment dividend has been between 9.5% to 11.5%,
which is far above...
So for the question you're asking, Islamic banking
is very simple to understand. It is a change of
thinking. What I'm trying to do is get rid of the
whole concept of fixed interest. That is the major
challenge for us: dividends.
What was your third question?
Ms. Pauline Picard: Thank you. Now I have a clear picture of
how your institutions work.
I have a question for you, further to the question put by my
colleague Mr. Cullen, who has been elevated to chairman.
Some members: Oh! Oh!
The Acting Chair (Mr. Roy Cullen): That's right, I have.
Ms. Pauline Picard: Which provisions in the bill prohibit you
from applying for a charter which would allow you to have your own
The previous witness explained about the interest. Have you
proposed an alternative of some kind?
Mr. Said Zafar: Yes. As a matter of
interest, this lady has reminded me that in 1982 a
group of Islamic bankers from Cairo, the Islamic
Development Bank, came over. I made
an appointment to see Mr. Mackenzie, who was the
superintendent of financial services. We met and he
said he couldn't allow us because we don't take any
interest. The chairman of the board, his president and
vice-president came all the way at my initiative. Like
the question you asked, Mr. Mackenzie said they would
not be allowed to function in this country because
Canada has legislation saying “thou shalt take
interest”, although he didn't use the words “thou
shalt take interest”. That was the end of our first
opening. Privately, Mr. Mackenzie told me we had to
familiarize a quaint Canadian legislature and lobby to
open an Islamic bank because interest is part of our
The Acting Chair (Mr. Roy Cullen): Okay.
Yes, Mr. Ansari.
Mr. Saleem Ansari: I guess the
summation you made is quite valid. What we're
going to do now is go back, look at the Bank Act,
and point out the sections that prohibit us right now
from starting a bank because we don't accept interest.
That's the only difference.
But to respond to your question, yes, our investors,
our depositors, like to increase their worth. They
like to make money on their money, but the way we are
allowed to make money is not by charging fixed
interest. GICs or fixed-term deposits are not
Mr. Said Zafar: RRSPs.
Mr. Saleem Ansari: —whereas the profit
participation is 100% allowed, like leasing is allowed.
Those types of transactions are allowed under the
Islamic banking system.
The Acting Chair (Mr. Roy Cullen): Thank you.
Mr. Ken Epp (Elk Island, Canadian Alliance): Thank
you very much.
I want to just follow up on this little bit. Can I,
as a non-Muslim, come to a Muslim—
Mr. Said Zafar: Of course.
Mr. Ken Epp: I have $50,000 in my pocket—and this
is strictly hypothetical.
I have $50,000 and I want to deposit
it with you. I'm going to come back in ten years to
get it. How much am I going to get?
Mr. Said Zafar: Before we accept your deposit, we
will ask you if you want a low-risk investment, a
high-risk investment, or no
deposit. You answer.
In Islam, as in Christianity and Judaism, man is
responsible for his economic welfare. Let me repeat
that: According to the saying of our prophet, man is
responsible for his economic welfare. You are
responsible for $50,000 becoming $70,000 or for $50,000
becoming $5,000 on the gambling instinct.
Mr. Ken Epp: Okay, now I want to ask you this
question. Here I am, coming to you with $50,000. I say
I'm coming back in ten years and I want $120,000.
Would you promise me that I'll get it?
Mr. Said Zafar: I'd say no, we won't be able to
do it. We'll give you $70,000.
Mr. Ken Epp: Oh, so we'll barter.
Mr. Said Zafar: Of course. Life is a bargain.
Mr. Ken Epp: Okay, now here's the second me. I
come to your window. I want to buy a house. I need a
loan of $150,000.
Mr. Said Zafar: Beautiful.
Mr. Ken Epp: Will you give it to me?
Mr. Said Zafar: Of course.
Mr. Ken Epp: And what do I have to—
Mr. Said Zafar: You'll sign the Islamic
Cooperative Housing Society's application form—
Mr. Ken Epp: Do I get it interest-free? Because I don't
believe in interest either.
Mr. Said Zafar: No. I'll tell you, you won't get
anything free in life. Being a member of Parliament
wasn't free for you, I don't think. You haven't gotten
anything free in your life.
Mr. Ken Epp: No.
Mr. Said Zafar: Thank God.
Now, the question is
about a house. You come over and fill out an Islamic
Cooperative Housing Society form. We'll issue you a
share of $120,000. Suppose your house is $250,000—and
I'm just giving figures. We'll loan you the balance of
$250,000 to $120,000, meaning $130,000. We'll give
that to you on the condition that we will put the rent
on your house. That rent will buy the share for your
cooperative until you pay your $250,000 down to
Mr. Ken Epp: So in other words, it will cost me
more than $120,000 to get a $120,000 loan.
Mr. Said Zafar: Yes, of course it will cost you more.
And more is what? More is 15% you get from the local
Mr. Ken Epp: Well, I actually...
I won't get into it.
Mr. Said Zafar: Why don't you say it? We
are among friends.
Mr. Ken Epp: Yes.
The Chair: Have you sold any accounts?
Mr. Said Zafar: You are the first one, because you
have the largest Muslim population in your riding.
The Chair: Oh, is that right?
Mr. Said Zafar: Yes.
The Chair: Okay.
Mr. Ken Epp: I want to ask one more question.
Mr. Said Zafar: Please, go ahead.
Mr. Ken Epp: It's a follow-up on what Mr. Cullen
got, and unfortunately he gave up the question.
Mr. Said Zafar: No.
Mr. Ken Epp: But I want to come back to that
Mr. Said Zafar: Please.
Mr. Ken Epp: Is there anything now in the Bank Act,
or anything in Bill C-38, or anything anywhere
that prevents you from opening up a bank that says
“Muslim bank; we deal according to Muslim rules
Mr. Said Zafar: No. We deal under Christian and
Jewish rules, because Judaism and Christianity don't
allow interest either.
Mr. Ken Epp: No. I'm asking you the question—
Mr. Said Zafar: Yes.
Mr. Ken Epp: —can you tomorrow, or if
Bill C-38 were passed, could you go out and start a
Muslim bank, or what is there anywhere in legislation
that prevents you from doing that?
Mr. Said Zafar: Sir—
Mr. Saleem Ansari: Yes.
Mr. Said Zafar: —my colleague has responded to
it. We will let Mr. Cullen know.
Mr. Roy Cullen: Through the chair.
Mr. Said Zafar: But you are going to write to me.
You said you were going to let me know.
Mr. Roy Cullen: I think I was basically saying the
same thing as Mr. Epp, that if you can indicate to us
what provisions preclude the establishment of a bank,
and if you could send that through the chair, then
we'll all be apprised of it.
Mr. Said Zafar: Okay, fine.
Mr. Chair, you
will be receiving another letter from me. You are
quite used to receiving letters from me.
The Chair: I like receiving letters.
Mr. Ken Epp: I think I still have time.
The Chair: You have time for just one more question.
Mr. Ken Epp: Mr. Calhoun, you represent people who
are fifty years old and older.
Mr. Rolf Calhoun: Yes.
Mr. Ken Epp: In your presentation, maybe I
missed it, but did you say anything at all about the
difficulty that seniors have in simply cashing
government cheques or things like that? Is that an
item of concern to you at all in terms of access to our
Mr. Rolf Calhoun: That is another issue, which was
not part of my presentation today, but quite clearly
there are seniors, as there are non-seniors, who face
difficulties in cashing cheques. If they don't have bank
accounts, if the bank doesn't have them as a regular
customer, then the bank or other financial
institution, by whatever name, would oftentimes make it
difficult, shall we say, for such a person to cash a
cheque. I believe it's not really an age-related
issue; it's an economic-related issue.
Mr. Ken Epp: Okay, but the reason I gave you that
preamble is now for the question.
Bill C-38 addresses the issue of low-cost accounts and
basically puts into legislation their requirement that
banks provide low-cost accounts to people like seniors
whose banking is very limited, who simply want to cash
a government cheque or two and pay their rent and
utility bills. Are you satisfied with the provisions
in Bill C-38 on that? Should they be stronger? What's
your reaction to them, or are you even aware of them?
Mr. Rolf Calhoun: Quite frankly, I haven't read
that portion of the bill, so I couldn't comment
other than on what you've just told me. But from what you
have just told me, clearly this would be an advantage
to seniors and to any other age group that faces this
Mr. Ken Epp: Okay. I would invite you to check
out perhaps that section of Bill C-38, and if you have
any further direction to us on it, it might be good for
us to get that.
Does anybody else have any comment... either of you
two gentlemen over there?
Mr. David Thibaudeau: I would make a comment
regarding the Islamic issue here, about whether you
can start a bank or whatever.
In listening to the
gentlemen describe one of their deposit products, I
would think there would be some issue there as to what
kind of product it would be, whether it would be a bank
product or a securities product, and there would be
other issues related to securities commissions in the
different provinces. So there would be a lot of work
to do to get it to a point where all your products
would be sanctioned by whatever authority is there to
sanction them. It's just a comment.
Mr. Said Zafar: Mr. Chairman, that
was a simplified statement. I was fully aware
there were other ramifications, but it was simplified.
Mr. David Thibaudeau: Right, I appreciate that.
The Chair: Thank you very much, Mr. Epp.
Thank you, Mr. Cullen.
On behalf of the committee, I would like to thank you
very much. As you know, we try to improve bills here,
and you've given us certainly some food for thought.
Thank you very much.
The meeting is adjourned.