Australia to get Islamic finance friendly

Australia is certainly raising its Islamic finance profile - as the following story from expressindia.com shows (although, in fairness, the story is based on an Agency release).

'Shariat-compliance is fast catching on Down Under too. Australia will outline laws in the second half of 2011 to equalise the tax treatment of Islamic finance and conventional banking, a government official said on Thursday.

The comments from Nick Sherry, Australia's assistant treasurer, mark the first time that the government has indicated a timeline for the change.

Australia joins a growing number of non-Muslim countries, which include Hong Kong, looking to develop their Islamic finance sector by changing regulations to attract investors who can only put their money in sharia-compliant assets.

Islamic financial transactions can be costlier than conventional deals as they often involve multiple sale and purchase transactions, which create a greater tax liability.

I think in the second half of next year we will be able to outline specific legislative change, Sherry said in an interview.

More countries have been exploring Islamic banking since the global financial crisis and Australia, which is dependent on foreign capital for its growth, is keen to become an Islamic finance centre.

Sherry said the government wanted to develop the industry as a whole, rather than specific areas such as sukuk financing or wealth management products.

I favour as comprehensive a set of changes as possible in one-go. I don't see (it) as the government's role to target particular areas, Sherry said.

HSBC and Australia's investment bank Macquarie are among those that want to offer sharia-compliant products in Australia, he said.

Islamic finance is derived from the sharia which forbids charging interest and favours profit-sharing arrangements or structures that resemble rental agreements. These transactions are underpinned by physical assets.

Sherry, who recently met bankers and investors in the Middle East, said Islamic finance investors were interested in Australian assets such as ports and railways, property, agriculture and resources.'

So who cares if it the same old story - it shows that Australia is fast entering the region of 'countries serious about Islamic finance' and that can only be a good thing, right?

Islamic finance products could form alternative to SRI products, says Nick Sherry

The following is an extract of a piece that comes from InvestorDaily (part of MorningStar Australia). Does this mean that Islamic finance is entering the mainstream in Oz?

'Islamic finance products are not just limited to a Muslim audience, but could attract the same client base as socially responsible investment (SRI) products, according to assistant treasurer Nick Sherry.

"There are an increasing amount of people in our community interested in socially responsible investments and Islamic Shariah finance is in one sense a form of socially responsible investment," Sherry said.

He said both wholesale and retail investors were likely to be interested in these products.

"There are investors, large and small scale, who do want to invest in these forms of financial instruments," Sherry said.

"There are people in the broader community that don't like to invest in alcohol or gambling and in that sense Shariah finance is another option that is available to people," he said.

Chris Bowen meets with the Malaysian PM

Chris Bowen, the Minister for Financial Services, Superannuation, and Corporate Law met with the Malaysian Prime Minister, Dato' Sri Mohd Najib bin Tun Abdul Razak in Kuala Lumpur on May 19th to discuss issues of mutual interest between Australia and Malaysia, including financial services and greater economic cross-border flows in the Asia-Pacific region. Bowen also represented the Australia Government at the 6th World Islamic Economic Forum that was held in Kuala Lumpur.

Bowen participated in a leadership panel at the Forum around the forward-looking theme of this year's program, 'Gearing for Economic Resurgence'. The WIEF is a public-private sector dialogue addressing the economic issues facing Muslims and non-Muslims; and plays an increasingly important role in enhancing understanding and goodwill among nations.

He also had a bilateral meeting with the Governor of Bank Negara Malaysia, Dr. Zeti, to discuss the collaborative partnership between Australia and Malaysia, and the further strengthening of the inter-linkages and commercial opportunities between the two countries. Islamic finance has an important part to play in the Government's efforts to grow the contribution of the financial services sector to our economy. The Islamic finance, banking and insurance market is worth almost $1 trillion and is estimated to reach as much as $5 trillion in coming years, according to Moody's Investor Services.

Terms of reference for Islamic finance tax review - update

Islamic finance man of the moment, Assistant Federal Treasurer Nick Sherry, has now announced the terms of reference for the review of the tax treatment of Islamic financial instruments in Oz. The review itself will be undertaken by the Board of Taxation.

The terms will include a review of the relevant tax laws to identify any impediments to the provision of Islamic finance, banking and Takaful products on a 'level playing field' to their conventional counterparts. The review follows a recommendation by the Australian Financial Centre Forum and will review impediments in existing state and federal tax laws to the growth of Islamic finance.

Senator Sherry acknowledged that Islamic finance was growing rapidly across the globe and was fast approaching the point where total Shari'ah compliant assets under management were around US$1,000 billion. "Attracting more of these funds and investment will develop business and boost jobs in Australia," according to the Assistant Treasurer. "My recent trip to the Middle East illustrated the vibrancy and dynamism of this sector and there is no reason why we should not address national tax laws that may be inhibiting local growth."

Watch this space.

Is Aussie beef halal?

Readers would do well to track down a short piece from the Al Huda Centre of Islamic Banking and Islamic Economics - which asks for the US$640b halal industry to align itself with the US$800 billion Islamic finance sector. This short article states that 'The halal industry believes that Islamic finance has long ignored its little `halal-half' brother, because it either does not understand the business model or its financing needs'.

The key question posed by this piece is - what would happen if major importers of Aussie food - such as Gulf countries were to insist on the food they import being halal? To quote the article, 'The GCC countries are major importers of billions of dollars in foods/products, projected to touch $53 billion in 2020. Now, what if large importers like Saudi Arabia or the UAE impose `their' halal certification criteria for exports from these countries, including G20 countries like Australia (red meat) and Brazil (chickens)?'

The article makes the point that although a Shari'ah compliant food-only index does not yet exist, S&P has 15 Shari'ah compliant food companies in the GCC and 123 global Shari'ah compliant food companies from China, Taiwan, Japan, Korea, Mexico, the US and others.

The sting in the tail is the conclusion of the article which states, 'The halal industry needs to get (1) its act together on process, auditing, and certification, and get into the face of Islamic banks and better explain the (2) inter-relatedness of the sectors, (3) better explain the business model, risk and its mitigation, (4) better explain that it establishes the foundation for diversified lending, and increased investor options for Islamic banks' customers, and (5) allow Islamic finance to talk the talk of a $2-trillion `niche' market in the making!'

Wise words - which the Australian food industry might want to spend some time thinking about.

Escape winter in Oz by visting the UK

July sees the Durham Islamic Finance Summer School happening between 5th and 9th. This is a course that is run by Durham University, UK - and is well recognised as a top course for Islamic financiers.

The full programme can be seen here.

According to the organisers, 'Durham Islamic Finance Programme (DIFP), with its international reputation in theoretical and empirical research, aims to share its experience by hosting an annual Islamic Finance Summer School (DIFSS), which has proven to be very successful in the last four years, with 56 participants from all over the world in the 2009 Summer School. We are, therefore, confident that this annual event will be equally valuable for future participants, whether they are pursuing a career in Islamic banking and finance industry, or in financial service providers are debating whether to offer Shari’ah compliant products, or pursuing academic research in Islamic finance related fields. To make the programme more appealing to individuals from professional financial and banking sector, the session presenters are invited from the Islamic finance and banking industry'

Worth checking out.

Victorian Premier John Brumby in the United Arab Emirates

Today John Brumby addressed an AusBG lunch in Abu Dhabi to talk up the important links between the UAE and Victoria – with a special focus on the investment and trade opportunities between the two states. Readers will remember that Mr Brumby has been instrumental in helping get Victoria ‘Shari’ah ready’ for business.

During a flying two day visit Premier Brumby opened the senior school of the Victorian International School in Sharjah and met with government and business leaders. According to Mr Brumby the UAE is Victoria's tenth largest export partner and second largest Middle East trading partner with goods exports worth $600 million in 2008-2009.

The UAE is also a nearly $200 million market for Victorian-made passenger cars and Victorian company Volgren, in partnership with Hafilat Industries, is building fourteen new buses for the Abu Dhabi Department of Transport.This partnership is also bidding to build up to 850 additional buses for Abu Dhabi Department of Transport which will open up a major new export opportunity for Volgren.

Mr Brumby also visited the largest Toyota dealership in the United Arab Emirates and fourth-largest in the world to inspect Victorian-made Camry's which are made at Toyota's Altona plant. 60 per cent of Toyota's Altona plant production is exported and a significant proportion of that goes to the Middle East.

Islamic Development Bank gives Australia & New Zealand a Guernsey

The Islamic Development Bank, headquartered in Jeddah, Saudi Arabia has just approved US$165 million for development projects that include Australia and New Zealand in the mix.

The new finances cover new development projects in Turkey, Bangladesh and Mali in addition to T.A. Grants for Muslim communities in Australia, Ethiopia, Montenegro, New Zealand, France and Kosovo.

The Australian grant consists of US$350,000 for the expansion of Islamic School of Brisbane in Brisbane while the Kiwi funding consists of US$290,000 for the construction of Waikato Islamic School in Hamilton, New Zealand.

Tahawwut Master Agreement

Today saw the unveiling of the ISDA/IIFM Tahawwut Master Agreement – a long awaited development for anyone looking to use hedging strategies to mitigate risk. The 43 page Master Agreement has been a labour of love for those involved – and hopefully it will be seen as the major breakthrough that it is.

Naturally there is still a lot of work to be done in order to widen the palette of Shari’ah compliant financial instruments available but this is certainly a step in the right direction. It is not yet clear how much application of the agreement will be made in Australia.

The Tahawwut Master Agreement was unveiled by Ijlal Alvi, CEO of the IIFM (International Islamic Financial Market) today during a briefing session held in the DIFC in Dubai.

Retail Islamic finance in Australia Part 2

We have come across a very useful article on the subject of Takaful in Australia from the good people at Mallesons Stephen Jaques. The report states, 'Businesses could also benefit from the availability of takaful and, given Australia’s robust prudential and regulatory regimes, takaful sourced from Australia may be attractive to overseas companies.'

An excellent primer on the subject and well worth the read - which you can do for yourself here

MFSS announce winner of the 2010 Victorian Innovation Funds Management Award

Here is a copy of a press release that should give Islamic finance followers in Melbourne a little flutter of pride:

'The Melbourne Centre for Financial Studies hosting the 2010 Melbourne Financial Services Symposium (MFSS) is pleased to announce that the 2010 Innovation in Funds Management Award has been awarded to Intrinsic Investment Management for their Intrinsic Crescent Ethical MDA.

This year three funds managers stood out; Intrinsic Investment Management, River Capital, and JM Financial. In commenting on the winner, MFSS Chair, John Gall, said that "All three finalists showed high levels of entrepreneurship and varying degrees of innovation in their business model. Above all they demonstrated a high degree of attention to risk management, corporate governance and engagement, a strong client service and communication culture and high alignment of interest with their clients".
“Intrinsic was chosen as the winner because of its CRESCENT ETHICAL MANAGED DISCRETIONEY ACCOUNT PRODUCT which provides MUSLIM people in Victoria and Australia with an opportunity to have their superannuation and non superannuation savings managed in a way consistent with their Islamic beliefs. In addition the product is considered appropriate for large overseas Muslim communities in say Malaysia, Indonesia and the Middle East to invest in Australian equities THUS meeting the strong push to make Australia and Victoria a major Financial Centre.

The product meets the need of a significant and fast growing portion of the Australian population, It is unique because there is not another investment product in Australia that looks after the investment needs of Muslim workers and investors, it is offered as a pooled fund or individually managed accounts.
Finally, the product required extensive revamping of internal investment decision making processes to meet the needs of Islamic investing. For example of the top 200 listed companies in Australia only around 72 qualify for Islamic investment. Despite this the product has managed to outperform the S & P /ASX 200 accumulation index.'

Wouldn't it be nice if there was a real Melbourne/Sydney rivalry over which city gets to be the Islamic finance capital of Australia? That way we might see some real developments real fast. Any thoughts, anyone?

Logie-Smith Lanyon employs Shari’ah adviser

According to LexisNexis publication Lawyers Weekly, Logie-Smith Lanyon, a firm of lawyers with its HQ in Melbourne has engaged a Shari’ah law advisor in the form of Sheikh Mohamadu Nawas Saleem. Sheikh Mohamadu Nawas Saleem migrated to Australia in 2000 and was educated in Sri Lanka where he completed a seven year course in Islamic Studies & Arabic at Jamiah Naleemiya Islamiya in 1983.

He worked as a Lecturer in the Matriculation Centre at the International Islamic University, Malaysia for almost 10 years before the move to Australia where he gained a Graduate Certificate of Education (Professional Development Studies) from Monash University in 2007.

Commenting on the appointment, Hyder Gulam, a senior lawyer at Logie-Smith Lanyon and board member of the Islamic Council of Victoria, told Lawyers Weekly: "Sheikh Nawas provides a unique expertise in his training under the common law system (as followed in Australia) and his expertise in the understanding of Shari’ah law." Sheikh Nawas serves on the executive committee of the Australian National Imams Council. "It was a great honour to be part of Logie-Smith Lanyon and to be one of the first consultant Shariah advisors to a law firm in Australia," he said in a statement.

Sheikh Nawas obtained a Bachelor of Law and Master in Comparative Laws at the International Islamic University in Malaysia and also works as an interpreter and translator in Tamil for a number of Federal Government agencies.

While the Gulf and Malaysia are knee-deep in lawyers with a specialisation in Islamic finance, Australia is only at the start of the curve – and we can expect to see more developments of this sort before long.

Is Australia Shari’ah-ready?

Shahriar Mofakhami, tax & revenue partner at Maddocks in Melbourne has written a splendid primer on the subject of Australia’s readiness for Islamic finance. The brief article comes with a very useful timetable that outlines the various steps taken in Australia to achieve ‘Shari’ah readiness’. The timetable begins in February 2008 when Chris Bowen announced that the Board of Taxation would undertake a review of the tax arrangements applying to managed funds and ends with the most recent announcements in March of this year.

While not alone in pioneering Islamic finance in Australia, Maddocks certainly make a valuable contribution to the development of thought in the area of Islamic finance in Australia.

You can download the primer itself from here.

Where is the real opportunity for Islamic finance in Australia?

How real is the retail opportunity in Australia for Islamic finance and banking products? While no one knows for sure, we might reasonably assume that we could draw interesting parallels between the UK and Australia.

As some blog followers may know the UK started to come to grips with Islamic finance back in 2002 when the Islamic House of Britain (as it was then known) applied for a banking license. While most of the discussions on securing the license were held behind closed doors, the whole process did seem to take an inordinately long time and the reason for this was that nobody seemed quite sure how to go about regulating an Islamic bank in the UK at the time. In the event, the authorities had to go back to regulators in the Gulf and ask them for assistance.

Bear in mind that the UK has an estimated Muslim population of around 2.4 million and the Islamic Bank of Britain, which was eventually licensed in September 2004, now has eight branches across the country and a small but growing range of products. There are no other standalone Islamic retail banks in the UK and the biggest retail player is still estimated to be HSBC Amanah. (European Finance House, European Islamic Investment Bank, and Gatehouse et al do not operate in the retail arena). Combined, the value of savings in the UK in retail type products (deposit accounts, savings schemes, Takaful policies) coupled with the total value Islamic home financing products still does not amount to much.

So how big is the opportunity for retail Islamic finance in Australia? With a Muslim population of less than 400,000 it seems that the industry may have to be happy with fairly modest scale – at least in the early days. In comparable markets the early demand tends to be for straightforward home finance products (aka Islamic mortgages) and there is already a small market for this in Australia. Whether there is any real demand for anything beyond this basic level of products at present is moot: supply will only ever come to the market in response to demand and so far this is not growing fast enough to make any discernable impact on the high street.

As Australia’s population grows, then so too might the demand for Islamic retail finance products – and rest assured we will be following this closely.