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Saturday, 8 December 2007

Australia may stand to gain from Islamic finance boom

There might be talk of recession in the United States, but in oil-rich countries, the petrodollars just keep flooding in, and they are driving the increasingly powerful Islamic banking sector, which is growing by more than 10 per cent a year.

The major centres for Islamic banking are in the Middle East, the UK and South East Asia, but now Australia is being touted as a market in the fight for the halal dollar.

Nearly $6 billion is held in global assets by Islamic finance institutions, and some of the world's biggest banks, like Citigroup and Deutsche Bank, have Islamic banking arms.

Islamic banking bans the payment of interest, which is forbidden under Sharia law. For example, if you took out a home loan from an Islamic bank, the bank may buy the home and resell it to you for a higher price. You pay the loan back over 30 years, with no interest.

Nail Aykan is from the Muslim Community Cooperative, the pioneer of Islamic banking in Australia.

"In Islam, a business transaction is allowed to make a profit, so there's no issue about making a profit, it's just that how you make a profit, what formula do you use," he said.

"We don't use a interest-based conventional banking formula, but we use another formula and, hence, aren't allowed to make a profit."

Karate champion Bilal el-Hayek says the Muslim Community Cooperative Australia (MCA) has helped him achieve the great Australian dream, because it matches his religious beliefs and does not charge interest.

"It's the most important thing in life, for us personally, from a religious point of view," he said.

"It's either buying a house with the MCCA, or not having a house at all."

Australian potential

As yet, no Australian banks offer Islamic finance, but a number are looking into it, including National Australia Bank.

Earlier this year, Kuwait Finance House, the world's second biggest Islamic bank, did a country report on Australia.

Andrew Reynolds from global accounting firm KPMG says we could become a hub for the region over the next 10 to 20 years, because of our stable financial and political system.

"A major part of the market would be servicing the existing Muslim community here," he said.

"To me, the larger potential, at this point in time at least, is servicing Muslims resident elsewhere, seeking investment opportunities."

Nail Aykan from the Muslim Community Cooperative thinks it will be even sooner.

"Islamic banking is the largest growing sector in the banking world, globally, and it will be big in Australia, purely because there is a demand," he said.

"Within five years' time there will definitely be at least one Islamic bank operating in Australia, if not more."

Islamic finance is not just about banking, it also includes products such as shares, bonds and insurance. Islamic investments comply with Sharia law by avoiding sectors like alcohol and gambling.

Ratings agency Standard and Poor's has just created three new Sharia indices, to draw some of the estimated $1.5 trillion worth of funds in the Middle East.

Jason Hill, the head of index services at Standard and Poor's in Australia, says he expects an Islamic stock market index to be based here within the next 12 to 18 months.

"Australia sits on the doorstep of the some of the largest Islamic regions in the world," he said.

"Australian investors, given the time zone in which the market trades here, is of particular interest, and I think there's strong interest in this area of the market." - (ABC News)

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