Islamic Banking arrives in Australia’s Financial Sector

SYDNEY: Imagine a global industry in these volatile and bruising times where it is considered a disappointment that growth might drop to single digits this year for the first time in more than a decade. That industry is Islamic finance, a system based on a set of Islamic principles that includes sharing risk in financial transactions. Standard & Poor’s estimates the sector now has more than US$2 trillion in assets. It has grown at between 10 and 20 per cent almost every year of this century to date, but may finally be slowing down as it achieves critical mass.
Mohamed Damak, global head of Islamic finance at S&P, sees headwinds on the horizon: the declining oil price, denting economic performance in key Islamic markets; rapid changes in global regulatory frameworks, both in banking and insurance; and the fragmented nature of the Islamic finance industry. “Still, Islamic finance will have the impetus to continue progressing and maintain growth,” he says.
That means Islamic finance, even if it’s slowing down, will continue to enjoy a headier pace of growth than China’s economy, global banking or very likely any Western stock market this year. Indeed, the jury is still out on whether it’s even slowing at all: Daud Vicary Abdullah CPA, president and CEO of the INCEIF Global University of Islamic Finance in Kuala Lumpur, believes that in the six most important markets for Islamic finance – Malaysia, Qatar, Indonesia, Saudi Arabia, the UAE and Turkey – Islamic banking assets are still expected to grow by an average 19.7 per cent each year until 2018.
“We expect the industry will be worth US$3 trillion sometime in the next decade.” Mohamed Damak, Standard & Poor’s this vibrant future is one reason it’s well worth Australia considering what it might achieve in the Islamic finance sector. It’s true that Australia lacks a sufficiently large Muslim population just over 2 per cent of the national headcount to be an obvious candidate for a successful industry.
However, Islamic finance experts point to two important factors beyond the country’s population base. One is that Islamic finance products, properly created, can be useful to anyone, not just Muslims. The other is that if Australia aspires to be a true regional financial hub, it must be accommodative to any area of the financial world that a customer in the Asia-Pacific might need. “The Australian Government has said that we want to be a financial services hub for this part of the world and, as such, developing a competitive sharia-compliant product offer is important to us,” says Alex Malley, chief executive of CPA Australia. Agencies