Sherry reckons Australian banks might benefit from Islamic finance

According to a report in The Australian, 'The development of Islamic finance in Australia could provide banks with an alternative source of wholesale funding and draw Islamic banks to set up operations in the country, Assistant Treasurer Nick Sherry said today.

As part of a push to promote Sydney as a regional financial hub, the federal government has pledged to win a greater slice of the regional Islamic finance market by amending tax laws.

The government said such changes would draw fully-fledged Islamic banks to Australia, attract investment in Australian assets from Shariah investors, offer new funding routes through Sukuk bonds and allow the establishment of Shariah-compliant investment products.

"Islamic finance could provide an alternative source of wholesale funds for Australia's financial institutions -- particularly as a result of excess liquidity generated from oil revenues in the Middle East -- and the increase in economic growth in countries with significant Muslim populations, such as Indonesia, India and Pakistan," said Mr Sherry

He noted that the value of Islamic finance assets worldwide was projected to almost double to $US1.6 trillion ($1.96 trillion) by 2012, which shows the "enormous extent of the opportunities available for both business and government".

The government last month commissioned a Board of Taxation review to ensure that, where possible, Islamic financial products have tax parity with conventional products. The review is due to report back by June 2011.

Australia, which neighbours the world's biggest Muslim nation, Indonesia, was hoping to capitalize on its geographic advantage, mr Sherry said.

"We also have global leading skills in real estate and infrastructure financing -- two areas with great potential in relation to wholesale Islamic finance activity as they both involve very real underlying assets, something we all know is needed in Shariah-compliant projects," Mr Sherry said.

Australia's major financial institutions already are moving into the Islamic finance space.

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.

The Johnson Report and more ...

It struck me that perhaps not everyone knew what the Johnson Report was – or how to get hold of it.

You can download a copy here. The full name of the report is Australia as a Financial Centre – Building on Our Strengths and it is principally a document aimed at identifying how Australia can best leverage its position as a global centre for finance.

Islamic finance is only the subject of a small portion of the report – but it is well worth reading for anyone who wants to understand where the government (and Treasury) are headed with this.

The initiative announced by Nick Sherry yesterday was a start to the implementation phase of the recommendations outlined in the Report. (The nickname for the report comes from the principal author of the report – Mark Johnson, chair of the Australian Financial Centre Forum).

Nick Sherry’s announcement seems to have received something of a muted response in Australia – with little coverage given to the story by the main news outlets (Fairfax and News). Thankfully Bloomberg gave the story an airing – and included a useful quote from Senator Sherry: ‘“My message is that in Australia we have what the wholesale Islamic finance market is calling out for. I will be focused very heavily on high-level talks on Australia’s tax treatment, regulation, promotion and export of Islamic finance, banking and insurance.”

The only contender covering the story in Australia seems to be my former boss’ (Bob Gottliebsen’s) new stomping ground www.businessspectator.com.au. The others just ignored it.

Thankfully there is someone who is willing and able to report on Islamic finance in Australia (look, I’m blushing).

Nick Sherry makes major announcement concerning Islamic finance in Australia

Monday 26th April will enter the annals for Islamic finance in Australia – since it was the day that the Assistant Treasurer of Australia, Senator the Honorable Nicholas Sherry announced that he had instructed the Board of Taxation to review Australia’s tax laws to make sure that Islamic finance transactions and institutions are not disadvantaged when compared to conventional financial structures.

The Senator chose Abu Dhabi as the venue for the announcement – in front of the great and the good from the Australian and local business community from Abu Dhabi, Dubai and the other emirates.

The instruction from the Senator comes soon after the recommendations in the Johnson Report that Australia ensure that Islamic finance is offered a ‘level playing field’. Doubtless the tax changes will be followed in due course by a thorough review of the legal and regulatory systems in Australia for the same purpose: allowing Islamic finance to compete on equal terms with the world of conventional finance.

Australia is naturally keen to attract foreign direct investment (FDI) from a wide range of countries – and the petrodollar rich countries of the Gulf appear to offer the promise of significant FDI in Australia in areas such and infrastructure development and agriculture.

The Senator is to be heartily congratulated on such a significant move which we hope will be followed by many other such changes. Full text of the press release that accompanied the statement by the minister can be read here (http://assistant.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2010/076.htm&pageID=003&min=njsa&Year=&DocType=)

The Senator was also accompanied by members of a trade mission from Australia which is undertaking a whistle-stop tour of the Gulf that takes in Abu Dhabi, Qatar and Bahrain.