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Thursday, 10 December 2009

Australia ripe for Islamic finance

SYDNEY, Dec 10 — Australia’s wealth of natural resources and financial landscape provide a natural platform for Islamic finance, with potential to attract a new type of global investors, an official with Malaysia’s stock exchange said.

Trailing Muslim neighbours such as Malaysia and Indonesia, Australia is looking at developing Islamic finance to attract wealth and create jobs.

The Australian and Malaysian governments held talks this week to cooperate in syariah finance to help Australia crack into the US$1 trillion (RM3.39 trillion) Islamic finance industry.

“Infrastructure funds and a lot of leasing funds are by nature attracted to acceptable syariah principles and real estate investment trusts (Reits) can be quite easily converted as well,” said Raja Teh Maimunah, global head of Islamic markets at stock exchange operator Bursa Malaysia.

Islamic finance, derived from syariah, or Islamic law, forbids charging interest and favours profit-sharing arrangements or structures that resemble rental agreements. Islamic financing is usually underpinned by physical assets.

More countries have been exploring Islamic banking since the global financial crisis, which was fuelled largely by poor asset quality and complex financial derivatives.

But there is also some scepticism about the system, with critics dismissing it as conventional banking cloaked in religious language.

Raja Teh said in an interview yesterday, during a visit to Australia, that there were syariah finance opportunities in Australia’s mature asset-backed securitisation market.

Australia’s residential mortgage-backed securities is the third largest in the world with A$176 billion (RM544 billion) on issue.

Moreover, Australia’s abundance of natural resources, such as gold, iron ore, copper, gas would also provide a suitable fit to syariah commodity sale contracts, called murabaha.

“Australia has a lot of supply of natural resources which can quite easily be used for the concept of commodity murabaha,” Raja Teh said.

Under a murabaha deal, an Islamic bank buys an asset from a third party and sells it to its customer at a cost-plus profit. This allows the bank to extend financing without charging interest, which the religion forbids.

The Australian government has expressed interest in Islamic finance but so far it is limited to small entities such as the Muslim Community Cooperative (Australia) Ltd and Iskan Finance which offer home loans.

One of the biggest obstacles to the development of Australia’s Islamic finance market is tax law.

“Anything from (capital) gain tax, stamp duty, withholding taxes (would need to be changed) because typically an Islamic transaction would involve, say, a sale-and-lease-back and that would attract gain tax and stamp duty,” said Raja Teh.

She sees potential demand from global investors keen on syariah compliant products to diversify their portfolios.

“For emerging Asian investors, this is an opportunity to get into a first world market within Asia-Pacific,” Raja Teh said. — Reuters

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