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Sunday, 23 November 2008

Prospect of Islamic Banking and Finance in Australia

The prospect of petrodollars would have been one compelling reason for international business drawn to this fast-growing sector in global finance.

Increasing interest in ethical investment and corporate social responsibility more generally is another driving motivation.

Regulators are feeling obliged to look into enhancing the rules to meet the needs of a growing Muslim population.

One social benefit is an additional avenue for a cross-cultural meeting of minds "on neutral ground", as scholar Abdullah Saeed puts it.

From academic research to niche interest, Islamic finance in Australia in fact has long increasingly come to the attention of commercial bankers, investors, financiers and lawyers, and government regulators at all levels.

It showed in the mix of participants at recent forums in Melbourne and the experience the industry was seeking to draw from multicultural Malaysia.

Academics, including a large contingent from Malaysia, over the week discussed a broad range of issues, including social justice, ethics and governance, and the provision of microfinance to the poor.

The global financial crisis added cogency to the interest, but as Abdullah collaborator Michael Skully tells it, Islamic finance is both a new and an old form of finance.

"Old in that it dates to the very formation of Islam and new in that it is really a post-1970s invention in its current form," says Skully, chair of banking at Monash University.

"A key part of its success is the potential tied with the growth of Islam itself, but there is an even greater potential market with non-Muslims as well," Skully said at a colloquium organised by Asialink, an Asia-focused centre at the University of Melbourne, and the university's National Centre of Excellence for Islamic Studies (NCEIS), headed by Abdullah.

As keynote speaker, Malaysian consultant Mohamed Ridza Abdullah talked of the Malaysian experience where half of the users of Islamic finance instruments are non-Muslims.

The NCEIS, at its two-day conference on Islamic studies, in collaboration with Monash's Centre for Studies in Religion and Theology, devoted a full day to Islamic finance. That's one of several undertakings Monash and the University of Melbourne are working on in Islamic finance. Another is a longer-term study funded by the Australia Research Council.

In yet another collaboration, the two universities, with RMIT University and the Financial Services Institute of Australasia, are members of a consortium bringing together the public and private sectors, and industry and academe, to enhance the national and international reputation of Melbourne in financial services, research and education.

On Friday, the Melbourne Centre for Financial Studies (MCFS), that came out of that collaboration, held a seminar on Islamic finance aimed at commercial bankers and financiers.

Business was the primary focus. As David Michell, business development manager of the MCFS, told the New Sunday Times, banks and financial institutions had long felt that Islamic countries were under-banked.

And the government trading arm, Austrade, has come to realise that that is a barrier to trade, particularly critical in Australian exports of food and commodities to the Gulf countries.

Within Australia, Islamic finance in its current form goes back close to 20 years, when the Muslim Community Co-operative (Australia) was established.

Kuwait Finance House, the world's second-largest Islamic bank, raised awareness after it opened a branch in Melbourne.

But both MCCA and Kuwait Finance House are only licensed to provide financial services. Neither has a banking licence. That may change soon, if interest shown by the regulatory institutions at the recent forums is anything to go by.

So, too, among conventional banks in Australia, none of which at present offer Islamic finance, unlike some of the larger international banks, including Citigroup, Deutsche Bank, HSBC and Standard Chartered.

Among those at the Asialink colloquium was community bank, the Bendigo Bank. "Over the years we have had inquiries," says Craig Thomas, senior community enterprise manager at Bendigo. "At the moment, we can't service their needs."

The colloquium was "a learning process", and Thomas' realisation was that some things needed to be done.

With Thomas at the colloquium was law lecturer Alice de Jonge, who has long been attracted to the social attributes of Islamic finance. "I have long been aware of the exploitative aspects of conventional financial systems," says de Jonge, a lecturer at Monash University.

De Jonge has been attracted to Islamic finance models and structures as being more in line with the socially beneficial role of financial institutions. "Islamic models begin with the premise that the role of a financial institution is to promote the overall wellbeing of society," she says.

De Jonge shares the view of Malaysian panellist Abdul Rahim Ghouse that there is potential for Islamic finance to co-exist, complement and contribute to conventional practice.

"This process is now beginning -- from both the Islamic side and the conventional side," she says. "Those involved at senior levels are gradually becoming aware of the advantages of co-existence and co-operation. But we have a long way to go."

Together with Rahim, now chief executive with Kuwait Finance House in Melbourne, de Jonge is optimistic increased travel and communication between peoples from different cultures and places have broken down barriers to acceptance of a variety of practices, Islamic finance among them.

Rahim points to greater understanding between cultures through research grants from the Australia Research Council, and interfaith forums contributing to more common ground.

Abdullah is optimistic, "neutral ground" such as financing in business draws from and contributes to engagement among peoples.

(New Straits Times)

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