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The growth rate of Islamic Banking (or Sharia compliant financial services) over the last few years has been very large, with most of the British high street banks now offering at least a few appropriate products. The Australian market, at the moment, seems empty. I think this is the result of a few problems in the Australian market, not least its size. Setting up a division to chase what may only be a small market would seem to be overkill. The regulatory framework is also written around the presumption that interest will be taken and received on each transaction – although it may appear that many banks are now making more from fees than they are giving away in interest.
Other regulations don’t help – the mortgage laws here, with duty payable on each transfer of ownership (which tends to happen twice in an Islamic “mortgage”, rather than the once in a traditional mortgage) and the consumer credit laws will both need to be re-visited to make this a bit more workable.
The establishment of the IFSB (Islamic Financial Services Board) and the publication of their Basel II style standards should help on the regulatory side. Perhaps the Australian Government should take on the challenge of converting them into local regulations, following the FSA example.
All-in-all, an interesting challenge for the Banks – and it would be a good way for the government to demonstrate that they are welcoming to other banking traditions.
3 comments
17 August, 2006 at 00:40
Imran K Lum
While I agree that a regulatory framework needs to be worked out on a national level, I would like to point out that the Victorian state government facilitated an amendment to the Victorian Tax Act by the Victorian Legislative Assembly and Legislative Council on the 7th and 14th of October, 2004 respectively, which facilitated the exemption of Double Stamp Duty for persons entering into an Islamic financial arrangement, which therefore made Islamic home financing and conventional mortgages on equal footing in Victoria.
The author described the market as being ‘empty’, however while I acknowledge that the Australian market is much smaller than the UK market, I do believe that there is room for potential future growth. There are currently around 300,000 Muslims in Australia according to the 2001 census representing about 1.5% of the population. This demographic is likely to increase significantly in the future as fifty percent of the Australian Muslim population at the time of the census were under the age of 24. Preliminary findings from my research on the demand for Islamic banking in Australia suggest that there is significant ‘pent-up’ demand for Islamic financial services among younger Muslims. Many respondents have suggested that they would switch to Islamic financial services if products and services improved. Respondents are demanding more competitive Islamic home and car loans and the introduction of Islamic insurance, internet banking and telegraphic transfers.
Imran K. Lum
PhD Candidate (Islamic Banking)
Centre for the Study of Contemporary Islam (CSCI)
The University of Melbourne
17 August, 2006 at 01:50
ozrisk
Thanks, Imran. I did not know that Victoria had amended its legislation. I think it is a good move. There is no reason why a Sharia compliant mortgage should attract more duty.
To me, the main difficulty at the moment is that there is likely to be some real expense in lobbying APRA to change the regulatory framework. Basel I and II treat much of these types of products as equity and give it a high risk weighting, rather than the credit weighting, which is lower. Until this is changed, I think the capital to be held on these will be punishing.
1 September, 2009 at 22:23
bhermana
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