Unlocking Islamic finance in Canada: supply-side barriers to innovation

Sultan, K. (2026) Unlocking Islamic finance in Canada: supply-side barriers to innovation. DBA thesis, University of Reading. doi: 10.48683/1926.00128894

Abstract/Summary

Islamic finance has emerged as a significant innovation in the global financial landscape, offering ethical and Shariah-compliant alternatives to conventional financial products. Despite its remarkable growth worldwide and the increasing demand among Canada’s diverse and expanding Muslim population, the development of Islamic finance within the Canadian financial sector remains limited. This study addresses the critical gap between market demand and institutional supply by examining the supply side barriers to innovation that hinder the development and growth of Islamic finance in Canada. Drawing on a qualitative phenomenological methodology (Moustakas, 1994), this research is grounded in the barriers-to-innovation framework established by Das et al. (2018) and supplemented by broader innovation theory. Twenty-two in-depth interviews were conducted with senior executives and innovation leaders across Canadian banks, credit unions, boutique firms, asset managers, and insurance companies. The analysis revealed a complex, interconnected set of obstacles, such as organisational inertia and resistance to change, risk aversion and perceived risk, complexity and cost of Shariah compliance, as well as societal factors such as Islamophobia and reputational concerns. It was found that these barriers are mutually reinforcing, creating self-perpetuating cycles that inhibit the growth of Shariah-compliant products and services, even as evidence of unmet demand in Canada persists. The findings highlight that, while many barriers to Islamic finance mirror those encountered in other financial contexts, the Canadian case is distinguished by challenges related to perceived reputational risks and authenticity concerns, as well as fragmented community engagement. This study provides actionable recommendations for financial institutions, policymakers, and community stakeholders, including the development of internal expertise, fostering executive sponsorship, regulatory harmonisation, and enhanced stakeholder engagement. By addressing these barriers holistically, Canada’s financial sector can advance innovation and financial inclusion, positioning itself as a leader in ethical and diverse financial services. This study makes a significant contribution to the academic literature on financial innovation and Islamic finance in non-Muslim-majority countries. It offers an empirically grounded, supply-side perspective on why Canada’s financial institutions have struggled to respond to the growing demand for Islamic finance, and outlines pathways for overcoming these challenges. This research has important implications for policy and practice, as well as future research on inclusive financial innovation in Canada and comparable jurisdictions.

Item Type	Thesis (DBA)
URI	https://centaur.reading.ac.uk/id/eprint/128894
Identification Number/DOI	10.48683/1926.00128894
Divisions	Henley Business School
Date on Title Page	November 2025
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