Are Shariah Financial Products the Wave of the Future?

While charging everyday items has become a habit for the majority of Canadians, our country's Muslim population has been able to avoid that trap. At the same time, it hasn't been able to benefit from the advantages of credit, either – until now.

According to Shariah law, the charging or paying of interest is forbidden, making it difficult to obtain such North American conveniences as mortgages and credit cards. This is an obstacle UM Financial, a Canadian Islamic financial institution, is hoping to overcome with its line of Shariah-focused financial products.

Shariah-compliant options

The most recent addition to UM Financial's line of products is a pre-paid credit card that is expected to be launched in August. UM partnered with pre-paid card provider, Mint Technology Corp, to create the unique iFreedom Plus MasterCard.

While individuals can abide by Shariah law simply by paying off a regular credit card's balance in full every month, that's not always an easy feat. The iFreedom Plus MasterCard allows holders to preload the card with up to $6,000, and then use it like any other. This allows holders to tap into a type of 'reserve fund' during the months that they can't pay the card down in full.

The reserve fund remains interest fee, but there is an initial charge to load it onto the card. The card also provides 1% cash back for transactions over $100. Its unique, interest-free model means anyone – regardless of their credit score – can obtain it. So, while the card is primarily designed for the Muslim population, anyone – whether they are teenagers or new immigrants – can qualify.

A global trend

The iFreedom Plus MasterCard falls in line with a growing global trend of Shariah-compliant financial products. In some countries, such as the US, UK and many in the Middle East, banks offer lines of credit to the cardholder and, rather than charging interest, they charge a monthly or yearly usage fee.

Other products enable a customer to purchase an item with a card, but after the initial purchase it appears on the individual's statement at a higher price. There is also the option of obtaining a lease-purchase agreement where the cardholder does not receive title of the purchased item until it is paid off in full.

Although these products are created to be in line with Shariah principles, many believe they could influence the financial products of the future. As more Canadians fall into debt, these types of products encourage the notion of saving, while at the same time offering the benefits of credit.