The rise of halal investing in Canada reflects a broader shift toward ethical finance that’s capturing attention well beyond its religious roots. What began as a faith-based approach for Muslim investors has evolved into a compelling alternative for anyone seeking investments aligned with certain ethical principles.
“We’ve seen a 40% increase in non-Muslim clients over the past two years,” says Zahra Khimji, portfolio manager at Wealthsimple’s halal investing division. “People are drawn to the screening process that removes companies with excessive debt or those involved in alcohol, tobacco, and gambling.”
Halal investing follows Islamic finance principles that prohibit interest (riba), excessive uncertainty (gharar), and industries deemed harmful. But these restrictions have created an unexpected benefit: portfolios with reduced exposure to highly leveraged companies and controversial sectors.
The Canadian Islamic finance market now exceeds $2.8 billion in assets under management, according to the Toronto Financial Services Alliance. While still small compared to the overall investment landscape, it’s growing at roughly 12% annually – outpacing conventional fund growth.
Yasir Khan, founder of Halal Wealth Advisors in Vancouver, has witnessed this evolution firsthand. “Five years ago, our client base was almost exclusively Muslim. Today, about 25% of new inquiries come from environmentally and socially conscious investors who appreciate our stringent screening approach.”
The parallels with ESG (Environmental, Social, Governance) investing are evident, though with key differences. While ESG funds might accept companies with sustainable practices regardless of industry, halal funds categorically exclude certain sectors.
The performance story has helped drive interest. The S&P/TSX Canada Shariah Index has delivered competitive returns over multiple periods, sometimes outperforming conventional benchmarks during market downturns. This resilience stems partly from avoiding highly leveraged companies that can struggle during credit crunches.
For Janet Williams, a Toronto-based teacher with no religious affiliation, the appeal was straightforward. “I wanted investments that aligned with my values. The halal portfolio excluded weapons manufacturers and predatory lenders – exactly what I was looking for.”
Financial institutions have noticed this broadening appeal. Major Canadian banks like CIBC and Scotiabank now offer Islamic banking windows, while specialty firms like Manzil and Wealthsimple have created digital-first halal investment options.
The Bank of Canada has acknowledged this growth, noting in its Financial System Review that Islamic finance represents an “innovation in financial inclusion” that serves both religious and ethical objectives.
However, challenges remain. The screening process creates additional costs, often resulting in slightly higher management fees. The universe of available investments is necessarily smaller, potentially limiting diversification. And despite growing awareness, many Canadians remain unfamiliar with halal investing principles.
“Education is our biggest challenge,” explains Omar Kalair, CEO of Manzil, which offers halal mortgages and investment products. “Once people understand how the screening works and see the performance data, the value proposition becomes much clearer.”
The approach has particular appeal among younger investors. A study by the Responsible Investment Association found that 71% of millennials have made investment decisions based on company behavior beyond financial performance, making them natural candidates for halal investing options.
The regulatory environment has also evolved. The Canadian securities regulators now provide clearer guidance on Shariah-compliant investment structures, addressing previous uncertainty that had limited product development.
“We’re seeing a convergence of values-based investing approaches,” notes Michael King, co-director of the Scotiabank Digital Banking Lab at Western University. “Islamic finance principles share common ground with both ESG investing and impact investing, creating interesting hybridized approaches.”
This convergence appears in products like the Global Iman Fund, which applies both Islamic and responsible investment screens, or Wahed Invest’s approach of prioritizing companies with positive environmental and social impacts among those that pass halal screens.
The pandemic accelerated interest in ethical investment approaches broadly. Market volatility highlighted the stability advantage of companies with lower debt levels – a hallmark of halal-compliant businesses.
“Crisis periods often prompt investors to reassess what matters,” says Khaled Sherif, senior analyst at Fundata Canada. “The resilience of halal portfolios during market stress has been a powerful selling point.”
As the sector matures, product innovation continues. The first Canadian halal ETFs launched in 2021, lowering the entry barrier for retail investors. Islamic fintech companies are developing robo-advisory platforms specifically for halal investing. And specialized REITs now offer real estate exposure structured to comply with Islamic finance principles.
For Canada’s approximately 1.8 million Muslims, these developments provide welcome financial inclusion. But the broader appeal speaks to something more universal – the desire to align financial decisions with personal values, whatever those may be.
“What we’re witnessing is the mainstreaming of faith-based investing principles,” concludes Dr. Saeed Khan, professor of Islamic finance at York University. “The boundaries between different ethical investing approaches are blurring, creating a more inclusive landscape where investors can find options that truly reflect their personal values.”
