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.