Islamic Finance in the World’s Largest Economies

Imagine a country with nearly two million Muslims, many of them highly educated professionals with growing wealth, yet without access to mainstream Islamic banking products that align with their faith. Now compare that with Dubai, where a similarly sized Muslim population is served by more than 25 regulated Islamic banks and windows. This contrast captures the story of Islamic finance in Canada; with a similar story in America. Enormous, untapped demand on one side and a mature industry on the other.

The irony is that North America has long contributed to the intellectual foundations of Islamic finance. Many of the scholars, researchers, and practitioners who helped shape the global industry studied at Canadian and American universities. The expertise exists. The community exists. What has been missing is large-scale institutional participation.

A Growing Community, An Unmet Need

Canada’s Muslim population reached nearly 2 million by the 2021 Census, representing about 5% of the national population and more than doubling almost every ten years. Projections suggest that figure could approach 2.7 million by 2030. The community is also young, with a median age of 30 compared to 41 for the broader population.

Its economic contribution is substantial. Muslims account for 5% of Canada’s population; however, 10% share of physicians, engineers, and IT professionals in Canada are Muslims due to immigration policy. In the United States, estimates place the Muslim population at around 5 million, making around 1.5% of the population, including roughly 50,000 physicians, making up approximately 5% of the total U.S. physician workforce. These figures point to a community with significant earning power and long-term financial needs.

Yet a major gap remains. While Canada’s overall homeownership rate is approximately 71%, Muslim homeownership is closer to 52%. Similar patterns exist in the United States. One important reason is the limited availability of halal home-financing. For many observant Muslims, conventional interest-based mortgages are not a viable option. As a result, families often continue renting despite having the financial means to purchase homes.

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The impact of renting extends beyond housing. Studies have shown children growing up in rental housing have a lower likelihood of attending university compared with children growing up in owner-occupied homes. Children grow up in rental homes from which they have to move constantly from one to another forcing them to change schools. This also marginalizes the western Muslim community where net worth does not grow due to low home-ownership rates.

Various surveys have shown that more than 80% of Muslims in North America consume halal food, yet less than 1% use halal financial products. Unlike Muslim-majority countries such as Saudi Arabia, Pakistan, Türkiye, and Malaysia, which have facilitated large branded banks that have captured significant market share—where today, in many Muslim countries, over 50% of retail financing is halal—this has not occurred in North America.

A Moment That Almost Changed Everything

The spring of 2010 appeared to be a turning point. On March 27–28, Harvard Law School hosted the 9th Harvard University Forum on Islamic Finance under the theme “Building Bridges across Financial Communities”. We presented a paper at the event on “Faith and Finance: Multicultural Banks Versus Islamic Banks”, where we argued that multicultural banks grounded in ethical principles but open to all consumers, would be more successful in Muslim-minority countries than institutions marketed as Islamic banks. Our paper shared that an Ethical Advisory Board that follows AAOIFI guideline with majority Muslims can have board members from other faith groups.

Just days later, the Usury-Free Association of North America hosted a major conference in Toronto at the Toronto Sheraton Center that attracted regulators, financial institutions, and international industry representatives. We were joined by other industry speakers such as Sheikh Nizam Yacuby, Mufti Barkatullah, Dr Nejatullah Siddiqi, and others. Media coverage was extensive with the event gaining attention on front pages of the newspaper and TV coverage across many mainstream news channels.

The impact of renting extends beyond housing. Studies have shown children grow-ing up in rental housing have a lower likelihood of attending university compared with children growing up in owner-occupied homes. Children grow up in rental homes from which they have to move constantly from one to another forcing them to change schools

Behind the scenes, a leading Kuwaiti Islamic bank issued a commitment letter for $100 million to support halal mortgages in Canada. Invitation was by the government of Kuwait and discussions progressed positively, and there was genuine optimism. However, when the proposal reached the bank’s board, concerns prevailed. The 2008 global financial crisis had made anything associated with alternative mortgage structures commercially sensitive. The commitment was never implemented.

That decision proved significant. More than fifteen years later, North America has still not experienced the large-scale breakthrough that many expected in 2010. Various levels of governments have made announcements and some changes for halal mortgages.

Fifty Years of Effort, Limited Scale

Islamic finance in North America has existed in various forms since around 1980. Over the decades, numerous cooperatives, financial companies, credit unions, and specialized providers have attempted to meet demand for interest-free financial services. Many achieved local success, but few reached meaningful scale.

One notable exception is Guidance Residential in the United States. Since its founding in 2002, the company has facilitated more than $10 billion in halal home financing for over 40,000 families. Guidance Residential funds come from two American banks. Its declining-balance co-ownership model demonstrates that Islamic finance can operate successfully within Western regulatory frameworks. Unfortunately, most other providers including regional banks, financial companies, credit unions and cooperatives have remained relatively small.

The Fatwa Factor and the Pricing Challenge

Two major obstacles continue to limit growth. The first is theological. Over the years, respected scholars issued rulings permitting conventional mortgages in situations where halal alternatives were unavailable in Western countries. These opinions were intended to address practical short-term challenges faced by Muslim communities. However, they also reduced market pressure for the development of alternative products. If consumers can rely on existing conventional solutions, the urgency for innovation naturally declines. Most of these rulings do state if a viable alternative that is the same cost exist then the ruling does not apply and the community should take the viable option.

The second challenge is commercial and arguably more damaging. Many Islamic finance providers in North America continue to charge significant premiums compared with conventional products. In some cases, consumers face substantial upfront fees and effective financing costs that exceed conventional alternatives. This has fueled criticism that Islamic finance is more expensive while delivering similar outcomes.

The contrast with international markets is striking. In countries such as Malaysia, the Gulf States, and Türkiye, Islamic and conventional products are often priced at par. Consumers do not pay a financial penalty for choosing a halal option. North American customers should expect the same. In North America today the price of halal meat is the same as conventional meat but the same is not for halal financing.

One encouraging example is Tjara Financial in Canada. Through a musharakah co-ownership structure involving clients, Tjara, and participating Canadian banks, customers receive pricing comparable to conventional alternatives. Tjara follows a similar model of Guidance Residential with a tri-party arrangement with a conventional bank. The principle is simple: faith-based financing should not cost more simply because it is faith-based. The Canadian banks that have signed up also made it clear that they do not want to discriminate: the same pricing they offer regular clients should also be offered to halal clients. This model deserves wider attention and replication.

Tjara Financial has introduced the same model to over 20 other countries where Islamic finance is also in single digits to help grow the market by partnering with conventional local banks.

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Rethinking the Language

Another challenge is how Islamic finance is presented. Many large financial institutions have told us they do not create products for specific religious groups. Terms such as “Islamic banking” or “Shari‘ah finance”, while accurate, can create hesitation within organizations that view themselves as universally accessible and secular in approach.

In 2004, for the first time the term “halal mortgage” was used because it was easier for consumers to understand than technical legal terminology. Today, however, we believe an even more effective approach may already exist. Canada’s Shared Equity Home Deposit Program offered homebuyers government participation in exchange for a share of future appreciation rather than interest payments. Structurally, the concept closely resembles musharakah-based financing.

Yet because it was framed as a shared-equity initiative rather than a religious product, it was broadly accepted.

This experience suggests a powerful lesson. Concepts such as shared-equity mortgages or shared-equity savings products can appeal to consumers regardless of faith. The underlying principles of risk-sharing, partnership, and fairness have universal relevance. Islamic finance may find broader acceptance when presented as ethical finance rather than as a niche religious offering. Our team has been working with banks across North America to adopt a Shared Equity Mortgage and Shared Equity Bank Account where Muslim clients can avail to a halal product with same cost and features as any bank.

The International Opportunity

The opportunity for international Islamic financial institutions has never been stronger. Canada with its significant household wealth within its Muslim community, has no major bank offering mainstream halal products. The demand exists. The regulatory environment is manageable. What remains lacking is institutional commitment.

North American Muslims are also deeply connected to global markets through travel, philanthropy, and investment. Saudi Arabia statistics shared that over 230,000 Americans traveled for Umrah Pilgrimage last year. Institutions such as Tjara Financial have partnered with banks and institutions in Pakistan, Singapore, and Indonesia for North American investors to invest in these countries. These relationships demonstrate the potential for international collaboration and capital flows.

A major Islamic bank in the West will be an example to showcase successful model of financing and an alternative for Muslims and non-Muslims. In the future, we look forward to the establishment of a bank open to all North Americans, such as United Bank of Canada having a broad based Ethical Advisory Board and open to all North American. Encouraging signs have been that last year a Canadian trade missions had meetings with the Qatar Investment Authority (QIA) who were open in placing funds in a regulated Canadian bank. They also met various members of al-Thani royal family. One senior al-Thani member agreed to join such initiative and support in the future.

Sukuk Role for North America in Providing AAA Products

With many Islamic banks, sovereign wealth funds, family offices, Islamic pension funds and others looking for sukuk products, they find a limited amount of investment grade sukuk specifically AAA or close to. North America, with its ability to issue high-rated sukuk, can be an area to focus on. Historically sukuks from North America have been oversubscribed. Many institutions have mandates overtime to convert their portfolio to be more halal. Many have conventional bonds such as US Treasury bonds and are looking for halal options. Products from North America can be structured as sukuk and give a halal alternative to such institutions. It is estimated close to $500 billion sits in US Treasury from Muslim-related institutions who are over time looking to convert to being halal.

Concepts such as shared-equity mort-gages or shared-equity savings products can appeal to consumers regardless of faith. The underlying principles of risk-sharing, partnership, and fairness have universal relevance. Islamic finance may find broader acceptance when presented as ethical finance rather than as a niche religious offering

A Vision for the Future

The long-term goal should not be a bank serving only Muslims. It should be an ethical financial institution open to all Canadians and Americans, guided by prin-ciples of fairness, transparency, and shared prosperity. Such an institution could operate according to globally recognized standards while embracing a diverse customer base and governance structure.

The halal food industry offers a useful comparison which has captured over 80% of the Muslim market. What began as a niche market is now served by major retailers across North America with every major supermarket having a halal section. Financial services could follow a similar path. If institutions offer competitive pricing, accessible products, and effective partnerships, adoption can grow dramatically over the coming decade.

A planned major conference is planned in the coming year in Toronto, Canada, that should help further grow the industry. We look forward to more interaction between the international Islamic finance industry and North America. The intellectual capital is here. The community is here. The demand is here. What remains is the willingness to build.