Trouble in the Smoke-and-Mirrors World of Sharia Banking

All because a Canadian enterprise went belly up:

DUBAI/TORONTO (Reuters) - The insolvency of an Islamic mortgage lender in Canada may hinder the growth of sharia-compliant finance in North America, where the industry has struggled to gain traction in the absence of a supportive regulatory framework.

UM Financial Inc was ordered into receivership in October, leaving about $32 million worth of mortgages in the hands of Toronto's legal system. Accounting and business advisory firm Grant Thornton was appointed receiver by the Ontario Superior Court of Justice.

The case has exposed uncertainty over the legal treatment of sharia-compliant mortgages in default, and questions over the transparency and oversight of smaller Islamic lenders. Industry experts said this could make investors in Canada and the United States more wary of considering Islamic finance in future.

"The failure of an Islamic financial institution should not immediately be construed as a failure of sharia-based financing," said Sheikh Muddassir Siddiqui, sharia scholar and partner at SNR Denton in Dubai.

But he added that the insolvency could give Islamic finance a bad name if the Canadian legal system determined that Islamic mortgage holders were not the ultimate owners of property for which they had been paying.

Allah willing, anyway.