Islamic Finance with Mohamad Sawwaf | E080
Halal financing challenges and opportunities.
Today, we are going to deal with Islamic finance and the challenges it brings to people who follow that faith, particularly business owners, and how those restrictions around Islamic finances can be adapted to many of our current financial structures that are not supportive of it. But there are options, and to discuss that, we have Mohamad Sawwaf, co-founder of a company called Manzil.
Episode Highlights:
01.42: Jason asks Sawwaf to talk about Islamic finance and what makes it different from Western Modern Finance.
02.00: Islamic finance is finance before interest, and that is the difference in terms of what we see today. Islamic finance’s main principle is that money has no value, says Sawwaf.
04.25: Jason says that as a Muslim, you can’t borrow, and that is incredibly restrictive from a business owner’s standpoint. He asks, about the other means for accessing capital to buy homes or even start your own business?
08.48: In Islamic finance, there is a big misconception that as the financer, you have the right towards repayment, and if the client doesn’t repay, there are so many mechanisms for you actually to have recourse on that asset.
12.21: Mohammad says that they are starting to see a real growth spurt in the Islamic Fintech space regarding innovative solutions, especially in the digital area that allows financial transactions to be much more simplified and accessible.
13.32: When you consider diversifying your investments as a Muslim investor, especially when it comes to the fixed income market, Islamic bonds are available, and they are called Sukuk, says Sawwaf.
15.37: Jason asks what does that look like if any Muslim in Canada, looking for a new business or building a manufacturing plant and wants to do things in a Halala method?
19.21: Sawwaf suggests, you don’t need to build banks to support initiatives. You can legally take the product that is off the shelf, Halalafy it and then rinse.
22.51: Today’s people are renting and avoiding homeownership because they want to sleep at night peacefully, knowing that their financial affairs are in order from an Islamic perspective, says Sawwaf
26.24: Federally, all meat out of New Zealand and Australia are halal because they export more than they consume and export to neighboring countries like Malaysia, Indonesia, and Singapore that require, says Sawwaf.
29.08: When you are trying to diversify an economy, and if you want to stick with primary industries, you have to create some specialties, says Sawwaf.
31.24: As per Sawwaf, nothing stops us from creating product industries except the capital required to bring it out into the open. There is no shortage of demand for anything.
3 Key Points:
Sawwaf says that for inventory financing, as long as there is the element of shared risk in a moment and the asset-backed or asset-based transaction principle is fulfilled, we are good to go.
The bigger issue is the infrastructure. It just hasn’t gained mass adoption around the world the way it needs to supplant or replace the needs of the Islamic community, and traditional banking would otherwise provide if they could do it, says Jason.
When you look at Census Canada, you see that Muslims have the lowest participation rates of homeownership and capital markets. It is not because of our balance sheet. It is because of a lack of power and rights, says Sawwaf.
Tweetable Quotes
“The loophole for the Jewish community was that you could loan to a Gentile, and therefore that became kind of the financial wedge that eventually normalized everything.” – Jason
“Multiple mechanisms allow you to do larger types of transactions, like buying a car or home, all happening under the pretense of Islamic finance.” - Mohamad Sawwaf
“Equipment leasing or financing is a low-risk, so to speak type of financing transaction because these are hard and real assets that you can see, feel, and secure.” - Mohamad Sawwaf
“The halal meat industry is a $2 billion industry in Canada that the FDA of Canada entirely regulates.” - Mohamad Sawwaf
“We are required to donate two and a half percent of our wealth annually as a donation to local charities that are serving the needs. It is mandated.” - Mohamad Sawwaf
Resources Mentioned
Full Transcript:
Producer: Welcome to the financial planning for Canadian business owners podcast. You will hear about industry insights with award-winning financial planner and entrepreneur, Jason inconvenient. Through the interviews with different expert, with their stories and advice, you will learn how you can navigate the challenges of being an entrepreneur, plan for success and make the most of your business and life. And now, your host, Jason Pereira.
Jason Pereira: Hello and welcome. Thank you for joining me today. As I mentioned earlier, this podcast has been published in a bit of a sporadic nature. I still need to work through the schedule and book people in back to back, but I will continue to pop in interesting topics from time to time. So, please stay subscribed. So, today's topic is what I've been trying to get done for a while and finding the right person to prove to be a challenge. But, I think I've done that. And today, we're going to deal with the topic of Islamic finance and the challenge is that, it brings to people who follow that faith. But in particularly, business owners and how those restrictions around Islamic finance can be basically adapted to. Just that a lot of our current financial structures are not supportive of it, but there are options. So, in order to do that, I brought in the co-founder of a company called Manzil, Mohamad Sawwaf, to basically discuss the issue with me. With that, here's my interview with Mohamed. So Mohamed, thanks for taking time today.
Mohamad Sawwaf: Thanks very much, Jason, really glad to be here.
Jason Pereira: So Mohamad, thanks for taking time. Because, I've been interested in basically improving education around this topic, because there's a lot of just lack of understanding of the challenges pertaining to anyone who's a follower of the Islamic faith and the issue of finance. Let's just start off by level setting. Talk to me about Islamic finance, and what makes it different than basically Western modern finance?
Mohamad Sawwaf: Absolutely. So, Islamic finance has been around for quite some time. In fact, it's over 1400 years old from the days of the prophet Muhammad, peace be upon him. And I always like to say that Islamic finance is finance before interest, and that's really the difference in terms of what we see today. Islamic finance' main principles is that money has no value. And so, when you take this concept that money has no value, well, I can't expect to earn money on top of money. And so, I need to be in a financial relationship that is more participatory, more shared risk in and of itself or in its environment, asset-backed and asset-based transactions.
Mohamad Sawwaf: And so, when you start to go along those lines, you start to say, "Well, this already sounds a lot safer and more stable, right?" Because, there's real value behind these transactions. And that's really the difference today. It's got to be more participatory. The days of loan sharking, or this whole verbiage of, we loan to own, right? We don't really care about those payments coming back to us. We just want to be able to own that asset at the end of the day, because we came in and gave them such a ridiculous contract. That's not what Islamic finance is all about. It's all about being fair and equitable.
Jason Pereira: Well, in fairness too, I mean every [inaudible 00:03:08] Christian, Muslim religion, we all have common foundings in that regard. All struggled with various doctrines around usury or lending in general that basically prohibited. And bit of a history, less and less, I'm mistaken, I think the loophole for the Jewish community was that you could loan to a Gentile. And therefore, that became the thin edge of the wedge that eventually led to everything becoming normalized. And in the Christian community, going back to, I believe it was the Medicis who innovated on this front, it was the concept of discount bonds or discount lending. So I'm going to let... You need to borrow a thousand, that's fine. Well, technically the loans for 1100, right? So you're going to pay me back an increase on this, and that's largely how they got around that until, of course, over time it just became accepted.
Jason Pereira: Okay. We can have lending and separation of church and state from that regard. And not only can we have lending, but, we're also going to come up with laws that hopefully prevent the usury issues we were looking to prevent, which was loan sharking and really things that were very negative. Now, not to say loan sharking doesn't still exist to some degree. I'll have to say that payday loans aren't some form of that to some degree as I bite my tongue, but the Islamic faith has followed a different pursuit and found different solutions. So basically, I can't borrow, right? I mean, if you're a Muslim, if I'm a Muslim, I can't borrow. That's what it comes down to, right? And I can't lend, right? Which when we think about it from a standpoint of anyone, let alone a business owner, that's incredibly restrictive. What are other means for accessing capital in order to do things like buy homes or to basically even start your own business?
Mohamad Sawwaf: No, absolutely. And the only way that I tell people that you can borrow money in a slam, if it's one for one, right? So you give me a thousand dollars, I give it back to you. There's something called qard al-hasan, meaning just basically, a loan out of the goodness of your heart, right? So, you're going to reap the rewards and blessings through the virtue of this. Let's call it a transaction, but not really monetarily, right? And then, of course, people say, "Well, you can't even keep up with inflation. You're going to lose." And all that stuff. Well, yeah. In the fiat world, especially when you add the lens of Islamic finance, you can't really do that. So, when we think about, well, how do actual transactions happen under the pretense of Islamic finance? Especially, if you are entering into larger type transactions, maybe you want to buy a car or maybe you want to buy a home, or maybe you want to finance receivables in your business.
Mohamad Sawwaf: There's multiple mechanisms that allow you to do that. And, one of the main mechanisms, or the majority of transactions that are done under this mechanism is called a Murabaha. So basically, it's a cost plus financing mechanism. And it has to involve an asset, okay? So, if you were in the market for a home today, Jason, and you said, "I like this home, I put an offer for $500,000." You would then come to me as an Islamic financier or Islamic financial institution and say, "I have this purchase and sale agreement in place." And then, we as the bank would say, "Okay, you know what? We're going to underwrite you. We're going to qualify you. And we're going to save you that, you know what? If we were to purchase this asset on your behalf and resell it back to you, we would resell it back to you, for example, let's say $750,000 and your payments are going to be fixed over the next 25 years or 300 months at $2,500 a month. 2,500 times 300 is 7,500."
Mohamad Sawwaf: So, think of it as like a long term, non-renewable, fixed straight contract, okay? But the essence here, in order for this to be halal, or as I like to say, halalified, is I have to take ownership of that asset and then resell it back to you in a moment of time, in an instant of time, as long as there's that transfer of ownership on both sides of the deal. And so, this is done for cars, done for homes. This is done for even equipment leasing or equipment in general. You can do inventory financing this way, right? As long as there's that element of shared risk in a moment of time, as well as the asset-backed or asset-based transaction principle is fulfilled, then we're good to go. And when it comes to the actual rates, it's really based on, maybe this is my term sheet of rates, or we negotiate what that rate is. You could come back to me and say, "Hey Mohamad, can we do it for this? Or can we do it for that?" And as long as we come to that agreement together, it's completely halal.
Jason Pereira: So bottom line is, it's not overly different from traditional procedures except for that risk sharing component, right? That's the big difference. Now, that is not something that's small to worry about, right? As a financial institution, right? You want banks traditionally want to lend money with no risk. So, what are the mitigating factors? As a lender, is there a way to mitigate your risk or as the... Not lender, but, as the risk share of this, is there a way to mitigate your risk in this entire scenario?
Mohamad Sawwaf: Yeah, absolutely. So, under this same transaction model, Murabaha, there's so many risk mitigating factors in favor of, let's call it, the financier. One, when you do these transactions, this buy and sell happens actually instantaneously. So, it's literally within seconds or moments of seconds. So, unless you as the financier really think that that's in and of itself too much of a risk for you to actually own this asset for a second or a couple minutes, then okay. That's a different story, right? But, as long as there is a paper trail that basically shows that you've owned this asset and you've now sold it. And it doesn't matter what the difference of time is in between those two transactions are.
Mohamad Sawwaf: You fulfilled that mandate, right? And then, of course, once that transaction or that, let's call that [inaudible 00:08:37], and that asset is sold or resold, you have all of the rights and protections or inconvenient in place as any financier would. Because in Islamic finance, and I think there's a big misconception around this, is that as the financier, you have the right towards repayment, right? And so, if a client defaults or doesn't repay, there's so many mechanisms for you to actually have recourse on that asset in and of itself. And so, I always tell people, when you think, when you look at the end result of an Islamic financial transaction, it looks exactly the same as a conventional one. It's just how you got there was completely different, right? It's really all in the process and the documentation.
Jason Pereira: Yeah. It looks closer to conventional than not. I think frankly, how long have these concepts of... I'm going to butcher the pronunciation, Murabaha, is that pretty close? How long has this been a commonly used tactic for being halal in terms of borrowing and lending?
Mohamad Sawwaf: Yeah. So, I would say the modern era of Islamic finance started off in the late '60s, early '70s, and really in the most Western example of this is the UK, right? They've started to introduce these types of structures back in the day. It was never mainstream. You obviously had the Islamic banks in the Middle East and North African countries, but they were just starting to become emerging markets. And so, they didn't really have fully fledged developed banking systems and they veered into the conventional space before they brought in the Islamic finance space. But yeah, you could trace it back to almost 50 years ago, I would say. And now, when you think about just Islamic finance on a global scale, we're approaching 3 trillion dollars in assets. Globally, it's at a double digit [Hager 00:10:20], and I'd say 70 to 80% of the transactions within that asset class, or you done using this cost plus profit model, which as you had lightly mentioned is termed as Murabaha.
Jason Pereira: Yeah. I mean, and when you say it's growing at that rate and how big it is, I mean, frankly, I'd have to say, this is the tip of the iceberg. Just even my own challenge. My own travels, I mean, having visited Egypt a couple times, because of a friend from there and seeing buildings that were like half done and no scaffolding on them and I'd be looking at them and saying like, "Okay, what happened there? Why are there so many half built towers?" And they're like, "Well, they basically built as far as they can get with the financing they have and then they stop until they can get more financing." And I'm just like, "Whew, man."
Jason Pereira: Not being able to borrow traditionally has some restrictions, especially. I mean, I think, the bigger issue is the infrastructure like we're talking about right now, just hasn't gained mass adoption around the world the way it needs to in order to supplant or replace the needs of this community that traditional banking would otherwise provide if they could do it. So, I mean, I think this is talk about a growth area. My goodness. And I think, especially in Western societies, as more and more Muslims move to Western society, this is a gaping, gaping hole.
Mohamad Sawwaf: No, absolutely. And I think there's also just a lack of a robust secondary market when it comes to the issuance of these Islamic debt instruments, which are called sukuk, right? It's like Islamic bonds. And so, anytime a sukuk is issued either at the sovereign level or at an institutional level, they're five to 10 times oversubscribed, right? There's just not enough paper that is being created to meet the supply of capital that people want to basically buy into. And when you think about, there's 1.8 billion Muslims globally, and a lot of them are concentrated in these developing countries and with not robust financial systems in place, there is a huge opportunity to really move this forward into the next frontier. And it just takes a few institutions at a global scale to be able to solve for this with well capitalized resources to make this happen.
Mohamad Sawwaf: We're starting to see, even in the Islamic fintech space, a real growth spur when it comes to innovative solutions, especially in the digital area that basically allow for these transactions to be much more simplified accessible because the Muslim population globally is a young one, right? Very young, very digitally savvy. So, there is an education and awareness piece to get them up to speed with the differences between Islamic based transactions versus the conventional. But, once they understand it and once they understand how that this can be applied to their religious lifestyle and you can make it accessible in the palm of their hands, there's no shortage of what kind of opportunity or potential that could be long term for them.
Jason Pereira: Agreed. I got to say, it's good challenge. So, let's talk about the other piece of this, which is the investing side. When someone wants to actually take their money as a Muslim and invest it, they of course cannot earn interest, which takes the entire global bond market. The single biggest investing market there is off the table. So, you guys can't use zero coupon bonds. You saw that trick. You don't approve of it. Okay. Fair enough. So basically talk to me about other than equity. How does one invest in a halal method?
Mohamad Sawwaf: Yeah, absolutely. So, when you think about just diversifying your investments as a Muslim investor, especially when it comes to the fixed income market. So, Islamic bonds are available. So, they're called sukuk. There are a couple of sukuk funds out there. There's one sukuk ETF that's been recently launched, SPSK. That's listed on the US exchanges. I think also AGF or Buetal, Goodman actually has a sukuk mutual fund that's available as well. Again, these are very, very small funds, maybe reaching a hundred million dollars again because there's not enough paper. And so, there are other ways of investing in income, deriving investment instruments. And one of them can be just in the actual of these transactions, right? So Murabaha, Musharakah, Ijarah, you could be a retail investor or an institutional investor in Islamic leasing or Islamic cost plus or Islamic partnership transactions whereby these assets in and of themselves are basically creating the revenue stream, right?
Mohamad Sawwaf: And that's the biggest piece, right? So if I'm going to go into some sort of fixed income stream transaction, well, where is the revenue being generated from? It can't just be generated off of the money. There's got to be an asset behind it generating that revenue. So, if it is a home, then yes, it's from the mortgage payments. If it's from a car, then it's from the financing payments. If it's from equipment, it could be from those leasing payments. So, more and more of these funds are now coming out. There's definitely still a dearth of them within the landscape, but we're starting to see that come into the marketplace more often and more available and making it more accessible to these Muslim based retail investors.
Jason Pereira: So basically, we talked about just Muslim finance in general. But, let's talk about as it pertains to business owners in particular. Got to find out that. This is probably a unique challenge. I mean, if you're in a manufacturing business, I think you can... The entire Murabaha purchase and sale thing, that is accessible. How accessible is that? How big in scale can someone get these days? I mean, as you said, there's a lack of paper or lack of flow coming through on this sort of stuff. So, the question becomes like, if I'm someone in Canada looking to basically build a manufacturing plant and I want to do things in a all, all method, what does that look like?
Mohamad Sawwaf: So, that's the thing, Jason. It's very jurisdiction based. I would say in Canada, it probably impossible to find transactions or contracts that would fulfill that mandate unless you went to some sort of private source of capital, could be friends or family or community and then, you structured a contract that would fulfill those principles. But, if you went into the GCC or the Gulf countries, or Southeast Asia like Malaysia and Singapore, Indonesia, where there are bank that basically do these types of transactions on scale or on mass, it wouldn't be hard, right? To build a manufacturing plant in those jurisdiction. But in North America in particular, I would say, it's pretty much close to impossible at the current time.
Jason Pereira: Well, let me just level that up a bit. What about knowledge based industries, right? You want to scale up a consulting company or something like that? What's the potential there if any?
Mohamad Sawwaf: So again, the potential's huge, the availability is very, very low. Right? So, I tell people like, "If you don't find it in the industries where it's very easy to create these transactions, i.e., manufacturing or equipment in industries that are heavy on equipment." Because those assets are real, right? It's very hard to then find it in the knowledge based industries, because they haven't been able to make that shift yet, right? The equipment leasing or financing is a low risk, so to speak, type of financing transaction, because there's hard assets or real assets that you can see feel the end and that you can secure. Then to transfer that over into a knowledge based industry, well, now you're moving up chain, it's a little bit higher risk, what are you securing against that contract? So, we really need to start with the hard assets first before we can get there. And again, you'd find that more prevalent in the Middle East, North African region, Southeast Asian regions versus in Europe or North America at the current time.
Jason Pereira: Yeah. Yeah. So, it's interesting. Now I look at all this and say, talk about an opportunity. That's the argument [Clayton Christensen 00:17:44] made one of his last books, which was nonconsumption is a sign of desire for consumption because sometimes it's just... Sometimes the unconsumption is, Hey, there's no market for this here. Other times, it's, Hey, there's a market for here this year. And no one's managed to tackle it yet. So, I look at this and say to myself, like there is a Islamic finance powerhouse willing to be built in Western society and most Western countries, because frankly, this is ever expanding population. [inaudible 00:18:09] billion Muslims worldwide, and more of them migrating to Western society. So, it's huge. So before we go any further, let's actually talk about what it is you've done to help fill this gap thus far.
Mohamad Sawwaf: So, Manzil really came out, let's call it from personal experience or personal concerns that I faced. I was born and raised here in Toronto and really enveloped myself within the Muslim communities here. And ever since I graduated in 2007 and got into the financial services field at the advisory level and at the retail banking level, there was just this constant banter of, well, there's nothing there for us from the community. They're saying, "There's no products. I don't know why you're trying to sell me this stuff. That's against my religion." In fact, you shouldn't even be selling it, right? Because it's against your religion to even be earning an income from selling these products and you go against that constant barrier and you then take this feedback and you're like, "Okay, well, there seems to be a real need here. And I take this up the levels of the executives at the banks."
Mohamad Sawwaf: And they all come down and say, "We know there's an opportunity, but we just don't think it's big enough." Or, "We don't have the resources financially, non financially to be able to put something together." And it's... I tell them, I say, "You don't need to build the bank to support these initiatives. You can literally take a product that's off the shelf, halalify it. And then, rinse and repeat." Right? And there's so many examples of Islamic windows, right? Which are basically Chinese wall departments of a main institution or a main bank, like HSBC has HSBC amanah which is an Islamic window of HSBC, BNP Paribas, same thing, Standard Chartered, Barclays, right? Some of them focus on commercial transactions. Some of them focus on institutional transactions, even like Goldman Sachs and JP Morgan in the states have done sukuk issuances on behalf of some of these large corporations.
Mohamad Sawwaf: And so, there is enough resources out there to be able to learn how to do these things. I think it was just a lack of will to be able to do so. And so, fast forward to, I would say, 2014 where I started to embark on my MBA. And that's where I hooked up with a professor of finance and economics out of Rotman, who was teaching the only Islamic finance course. And when I expressed my interest to him, he says, "Yeah, absolutely. Why don't you become my TA and let's co-teach this class." And so, that's really where I understood the foundations of Islamic clients, but more importantly, how do you actually localize these transactions? Because, when you're coming from a country that has no tax, right? You come from UAE or Saudi and any type of transaction, there's no applicable tax, right?
Mohamad Sawwaf: It's very easy to be like, "Yeah, let's do a back to back still transaction. Or you know what? We're going to share in this contract on a profit and loss basis." And there's still no implication of tax on capital gains or the such, right? And so, the localization of these products becomes very, very key. And so, in 2017 is really where I like to say rubber hit the road and that R&D mode kicked in. And I came to tackle the most, I would say, the hardest or most complex problem, which is the piece of home ownership, right? When you think about Canadian Muslims today, where 1.8 million strong growing to 3 million over the next 10 years, and we have a 20 billion dollar annual spending power, but when you look at census in Canada and you see that we have the lowest participation rates of home ownership and capital markets.
Mohamad Sawwaf: And I tell people it's not because of our balance sheet. It's because [crosstalk 00:21:39] rather. Right. The whole situation where the banks were like, yeah, we're going to listen to you. And they started to maybe redesign their marketing strategy to appeal, to certain languages, certain cultures, they'll put people of the same community within these local branches. But me as a Muslim, I will walk into a branch and say, "Okay, it's great that you speak my language. It's great that there's somebody that I can connect with on a common ground piece, but do you actually have a Shia compliant product?" And the answer is no. And then, I walk out, right?
Jason Pereira: Yeah, exactly.
Mohamad Sawwaf: You still can't serve my purpose. So I said to myself, I said, I have to create retail products that not only can fulfill this mandate of financing, but also can fulfill this mandate of investing.
Mohamad Sawwaf: There's so much capital sitting on the side. We constantly hear this, especially from the time of [inaudible 00:22:2], the crash, how much money has been sitting in cash. I can tell you that there's a multiple of that. Especially, amongst the Muslim community. I get calls on a daily basis on my platform saying, "Hey, I have 500,000, 600,000 sitting in cash. I can give you a 50 to 60% deposit to purchase a house. Can you just finance the remainder? Right? Like 30, 40, 50 percent. There's people today are renting, avoiding home ownership because they want to go to sleep at night peacefully knowing that their financial affairs are in order from an Islamic perspective. People go out and buy cars and cash, because they don't want to enter into any sort of financing agreement. People have bare credit scores because they don't want to have debt contracts, right?
Mohamad Sawwaf: That they want to enter into in order to increase their credit score. So they'll do the minimum, they'll secure a phone line, just so they can basically get that rental agreement in place. And they'll secure a prepaid credit card that potentially will build their credit right over time so that they can secure online or rental. They'll just do the bare minimum. And so, when you think about the lost opportunity from a GDP perspective, the lost opportunity from a knowledge based perspective within this community of... Which is now almost 5% of Canada growing to 10% to Canada, over the next 10 years, it's massive. It's completely untapped. It's blue ocean.
Jason Pereira: Yeah. It's growing. I mean, yeah. It's [crosstalk 00:23:55].
Mohamad Sawwaf: And who are the immigrants that are coming in?
Jason Pereira: They tend to be from countries that are more pronounced to be Muslim. Absolutely.
Mohamad Sawwaf: The majority of them, right? And we have, [Trudo 00:24:03] announcing that he is increasing immigration to 400,000 a year over the next four years to 1.6 million. I would suspect the majority of those are coming from these countries. And they're coming in with skills. They're coming in with dollars. Real dollars, but, and they don't know where to deploy them, or they're being forced to deploy them into assets that are interest bearing. And you know what they do? Even if they do collect that interest, they give it away to charity. They have to [crosstalk 00:24:26].
Jason Pereira: [crosstalk 00:24:26] get rid of it. Yeah. It's frustrating. I mean, I can't even... I mean, talking about a lack of financial inclusion, it's nuts, but yeah. Tell you the... It's a little bit tongue twisting, because it's just like, you look at a market, that's like you set 5% Canadian population growing. We're bringing in the most educated ones in most cases, right? And it's like we're [inaudible 00:24:44] and then we're basically saying, okay, now you either have to do something that's against your religion or you have to basically try to go out there and make it with... [inaudible 00:24:52] with both hands tied behind your back. Just doesn't make sense.
Mohamad Sawwaf: Yeah. And when you think about even just, we can get it to the topic of just real estate market in Canada [crosstalk 00:25:02].
Jason Pereira: Oh God. [crosstalk 00:25:02]. Oh my God. The lack of wealth that is, you look at the increase and I can go talk about the bubble-
Mohamad Sawwaf: Yeah.
Jason Pereira: ...and the problems with all this, but an entire cohort has been left out by nature of their religion, unfortunately. And our inability to service them.
Mohamad Sawwaf: Yeah. I was born here, right? So, I'm 36 years of age. And I remember my parents in the early '80s, late '80s, they were going to the one butcher shop that was providing halal meat.
Jason Pereira: Yeah.
Mohamad Sawwaf: But fast forward to today, the halal meat industry, if you didn't know this, Jason, is a $2 billion industry in Canada, fully regulated, right by the FDA of Canada. And halal meat in general, just mainstream, it's available. You probably eat it. You don't even know, right?
Jason Pereira: Oh, I know. This is always the default, right? At the end of the day, if it's always easier to... If you're going to meet the needs of a hundred percent of the population, but 5% cares that it's halal or kosher, or whatever it is, it's just easier to buy. If the price is the same, it's just easier to make everything that, right?
Mohamad Sawwaf: Absolutely.
Jason Pereira: So, I fully expect a default to be. And I mean, my understanding of the difference between halal and kosher, forgive me if I'm wrong here, is just it's a different prayer set over the animal before the slaughter, right?
Mohamad Sawwaf: It's exactly the same, except for the prayers. And in fact, us Muslims were allowed to eat kosher meat.
Jason Pereira: There you go. So, it's just easier if you're a business to not bother playing this game, let's not [crosstalk 00:26:17].
Mohamad Sawwaf: And you know? That's in fact what they did in New Zealand and Australia. So, federally, all meat out of New Zealand and Australia is halal. Why? Because, they export more than they consume. And where are they exporting to? Neighboring countries like Malaysia, Indonesia, Singapore, that requires. So they said, "Well, why do we have two systems in place? By default, right? Let's just make everything halal and everybody can consume it. No problem.
Jason Pereira: Totally. Well, I mean, why bother?
Mohamad Sawwaf: Yeah.
Jason Pereira: Why bother you?
Mohamad Sawwaf: Yeah. And so, my point is, if we had Islamic finance 40 years ago, and it was able to grow to a scale where the halal meat industry is today, imagine the wealth that could have been created from this community. Imagine the charitable, a giving that is... Because, in this Islam too, we're required to donate two and a half percent of our wealth on an annual basis. Like it's an alms giving. It's like it's mandated, right? Yeah. And so, you have to give away two and a half percent of your wealth to local charities, communities that are serving the needs. Imagine where society could be today if that was available, if that was there.
Jason Pereira: Yeah. The shortsightedness, I mean, we talk about the lack of finance. And here's the thing. And I can't harp on this enough. One of the big varying factors when we look at economic development of any nation versus another, or any population versus another is access to financial services. This is why [inaudible 00:27:39] like open banking and democratization of financial services are incredibly important. Because if not, like I said, you're basically holding back a population that could otherwise be doing wonderful things, creating job opportunities, giving the charities, you name it. And we just have not done that. I mean, I think it's getting a little bit longer the tooth to be arguments in its infancy. It's something that maybe in a... I'll pick on Canada here, as I always do, if we had a more competitive financial landscape with more than five institutions running everything, maybe one of them would make it a priority. Because, they saw the opportunity to capture 5% of the market. But, when you're fat and lazy and you don't have to do anything other than keep competition out, what's the point?
Mohamad Sawwaf: No, absolutely. And I tell people, you brought up a good point. It's, you can have an industry of Islamic finance that's running parallel to conventional finance. But what are you creating? And we had to do this ourselves, Jason. In 2017, when I was seeking law firms and audit firms and advisory firms to create this product, I actually had to educate them first, create the awareness.
Jason Pereira: Yep.
Mohamad Sawwaf: And then... So I was creating a sub-industry out of that industry, right? So, there are law firms now in Canada that had subspecialties in Islamic finance, there are audit firms. There are advisory and consulting firms, right? And so, you can create a new industry. And the bad thing about Canada is, what is 66% of our GDP is what finance and resources and finance [crosstalk 00:29:01].
Jason Pereira: We're a bunch of resource companies, a bunch of banks and a bunch of other on the periphery. And then you'll of course shopify.
Mohamad Sawwaf: And when you're trying to diversify an economy, if you want to stick with those main industries, then create subspecialties out of them, right? Diversify those main industries, so that you can imagine the FDI that could come from this, right? There's so much money in the GCC. I go to the golf twice a year, Canada is just an unknown market to them. They're like, "Yeah, we understand the US. Our dollars are pegged. There's no Forex risk there. We can put our money there, but Canada's just completely unknown. There's no transaction, there's no comparables for them to look at. They don't even bother. But imagine if you opened your doors and said, "Yes, we're happy to do these transactions on [inaudible 00:29:48]."
Mohamad Sawwaf: The amount of money you could get for infrastructure, the amount of money you could get for just... There's actually money already in Alberta from [inaudible 00:29:57] which is the sovereign wall farm of Abu Dhabi. Dubai ports is my managing our Vancouver ports right now. So hundreds of millions, if not billions of dollars have been ported to very specific sectors, petrochemicals ports, but we could be attracting a lot more, especially when it comes to banking and finance. But again, this all about ballistic approach within banking, within telecom, within airlines, we're shooting ourselves in the foot when it comes to this stuff.
Jason Pereira: Nothing irritates me anymore. Completely agreed. And I think we'll take it. We'll wrap up here after we beat up on Canada yet again, when it comes to our lacking competition. But overall, I mean, here's the reality of it. If you're an Islamic investor business owner person in this country, you have a challenge and those challenges [inaudible 00:30:42]. And I... Knowing the situation, I've always been a little bit more sympathetic, if not impressed by those who managed to make it work because, doing so with a hundred percent equity financing because you have no other option is very, very constrictive. I know myself and my own business, I couldn't be where I was without that financing. So without having kosher alternatives, pardon, in this case, halal alternatives, whatever. I use kosher, it was a term for clean all the time. A lot alternatives. We really are asking these people to go out and fight a battle with both arms try behind their backs. And I thank you for helping create this nascent industry in Canada and hopefully hope to see it expand.
Mohamad Sawwaf: No. Thank you very much, Jason. And if I could leave with any final thought, I tell people all the time, these structures, these trends, actions can be created. There's nothing stopping us from creating them, except for the capital that is required behind it. Right? To basically bring it out into the open. There's no shortage of demand. So, you don't really have to worry about that, right? You have one side of the puzzle already solved. You just need to find the capital and the structures can be created. In fact, there's multiple example in Western countries in common law. You don't really need to go that far to be like, well, are there really risks associated with creating these types of structures or products? There isn't really, at the end of the day. They're out there. You just have to go beyond the borders.
Jason Pereira: Yeah. I find more often than not people like, "Oh, but it's an unknown." It's like, well that you really research that. More often people who are risk adverse to shut something down with words like security or unknown or all this other stuff. Well study the problem, understand the problem. And then, you'll see it's a lot more secure.
Mohamad Sawwaf: Yeah.
Jason Pereira: Anyway, thank you for your time. And thank you for taking the time to explain this to everybody. And I greatly appreciate it.
Mohamad Sawwaf: You're most welcome. Thank you, Jason, for having me.
Jason Pereira: So, that was my interview with Mohamad Sawwaf of Manzil. I hope you enjoyed that. And I hope if you enjoyed this podcast, please be sure to leave a review on Apple podcasts, Stitcher, SoundCloud, Spotify, whatever's get your podcast. Until next time, take care.
Producer: This podcast was brought to you by Woodgate financial, an award-winning financial planning firm, catering to high net worth individuals, business owners, and their families. To learn more, go to woodgate.com. You could subscribe to this podcast on Apple podcast, Stitcher, Google play, and Spotify, or find more episodes @jasonpereira.ca. You can even ask Siri, Alexa or Google home to subscribe for you.