Islamic finance and opportunities in Australia

Islamic finance has considerable potential to become an important element in Australia’s aspirations to be a global financial services centre in the region. It has the potential to facilitate further innovation and competition in the wholesale and retail banking sectors.

Australia’s growing trade linkages with Asia reflect the demand for Australian commodities from developing countries such as China and India. Of the top 10 trading partners, eight are in the Asia Pacific Region with China and Japan being the country’s top two-way trading partners.

Continued growth in major Asian economies will result in a need to develop resources-related services and infrastructure, which are ideal assets for some forms of Islamic financing, such as Sukuk, Mudaraba, Murabaha and Ijarah. Australia is well positioned to structure and offer such instruments as part of financing packages for resources-related development.

Australia’s attractiveness as a financial centre is supported by a sizeable domestic economy and financial market. The nation has the fourth largest economy in the Asia Pacific (after Japan, China and India). Australia’s finance and insurance industries generate around 8.1 per cent or A$82 billion of real gross value added.

Australia’s financial sector has remained strong, continuing to develop as a regional and global centre during the global economic downturn. In The Financial Development Report 2009, the World Economic Forum (WEF) ranked Australia the second among 55 of the world’s leading financial systems and capital markets.

Australia is well placed to take advantage of the Islamic finance opportunity, with widely recognised strengths in retail and commercial banking and experience in infrastructure, property, resources and agricultural financing.

Specific opportunities for Australia include:

• attracting foreign full-fledged Islamic banks and conventional bank Islamic windows to establish operations in Australia;
• attracting investment in Australian assets and businesses from overseas Shariah investors and tapping into new funding sources through Sukuk and other securitised issues;
• Australian-based banks providing from Australia a range of Shariah-compliant investment and financing products and services to Islamic banks, corporations, institutions and high net worth individuals in the Asia Pacific and the Gulf regions;
• fund managers establishing Shariah-compliant funds for Asian and Gulf institutional and high net worth individual investors;
• local exchanges providing an Islamic listings platform for domestic and international issuers of Shariah-compliant instruments;
• provision by Australian-based financial institutions of Shariah-compliant/ethical financial services and products to Muslim and non-Muslim customers in Australia;
• Australian-headquartered banks and insurance companies exporting Islamic financial services through windows as they grow their operations into Asia; and
• Australian-based financial firms, professional services providers and educational institutions exporting their services into Asia and the Gulf.

Australian Federal and state governments recognise that growth of Islamic finance in Australia requires supportive government policies. It is important that there is:

• a level taxation, legal and regulatory playing field for Islamic and non-Islamic finance. Taxation must be responsive and enabling but non-preferential;
• strong promotion and facilitation through government investment attraction and export promotion agencies;
• government engagement with the private sector in achieving Islamic finance objectives, identifying impediments to, and opportunities for growth;
• a focus on deepening Islamic finance skills – education, training, attainment of relevant qualifications – and on access to appropriate Shariah scholars; and growth in Islamic finance professional services providers.

Source: Islamic Finance in Australia (AUSTRADE, 2010)

Download full publication: Islamic Finance in Australia – Publication by Austrade

About AUSCIF:

The Australian Centre for Islamic Finance (AUSCIF) is the pre-eminent Australian organisation facilitating knowledge transfer and thought leadership within the Islamic financial sector.

Learn more about AUSCIF at https://www.auscif.com