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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.