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Sunday, 27 October 2013

Australia has chance to ride high on an Islamic finance wave

For the past couple of years, the Australian government – prodded by the financial sector – has been pondering the regulatory and taxation changes that would be necessary to create an Asia-Pacific Islamic financing powerhouse.

However, with the change of government last month and continuing concern over the effects of easing Chinese growth on Australia’s commodities-led economy, there is a danger that Islamic finance has been consigned to a back burner.

Australia’s stable political and social environment – and its highly advanced financial market – have long created interest among Islamic finance professionals in building the country as a hub to serve not only the domestic Muslim population but also the large and less financially sophisticated markets nearby, such as Indonesia and Malaysia.
Some in the Arabian Gulf region say Australia could be very conducive to Islamic financial products.

“Islamic financing advocates the ‘real’ economy and commodity financing,” says Hatim El Tahir, the director of the Islamic finance group at Deloitte, another consulting firm, in Bahrain. “Australia has a rich real economy,” he adds, citing its agriculture, livestock and minerals and metals as “good assets for Islamic finance”.

There have been encouraging developments in the local market: in December, Sydney-based Crescent Wealth, the country’s first dedicated Islamic investment firm, launched Australia’s first Islamic superannuation fund. 

Superannuation, known as “super”, is the country’s compulsory employee retirement fund.

“Sizeable superannuation or pension funds represent a large opportunity,” says Almir Colan, director of the Australian centre for Islamic finance and a consultant lecturer at La Trobe University in Melbourne.

“We are now seeing intense competition by fund managers to provide Sharia compliant alternatives.”

More recently, say observers, a number of institutional players have been investing, principally in property. “We believe current penetration is less than 1 per cent of its potential and hence we are excited about growth opportunities,” says Talal Yassine, Crescent Wealth’s managing director.

Mr Yassine estimates the current super savings of the Australian Islamic community at about A$11 billion (Dh38.87bn), a figure expected to double by 2020. “This is supported by the 40 per cent growth in the Islamic population in Australia since 2006,” he adds.

One relatively popular Islamic product in Australia is diminishing musharaka for home financing, says Matthew Stutsel, the national head of state tax at the accounting firm KPMG in Sydney. Some fund managers offer investments in Sharia-compliant investments, mostly equity funds.

Experts say Australia is well positioned for the development of several other Islamic financing instruments, including murabaha asset sales and purchases, ijarah leasing and mudaraba profit-sharing partnerships. One potential windfall could be the use of sukuk for large-scale projects.

“There is potentially a huge role for Islamic finance to play in helping to fund Australia’s infrastructure requirements,” says Alex Regan, a partner at the Corrs Chambers Westgarth law firm in Melbourne.

However, while such terminology is familiar in the Middle East, some asset managers warn exotic terms – like all financial jargon – can be off-putting to mainstream investors if Islamic finance seeks to move beyond Australia’s 400,000-strong Muslim community.

“In my view, Islamic finance and investment products need to be relaunched as ethical or responsible, without the unusual labels such as sukuk and musharaka,” says Glenn Woolley, the managing director of Intrinsic Investment Management, a Melbourne fund manager.

Mr Woolley, whose company caters to both Islamic and non-Islamic investors, says it is too early to identify any trends in Australia-based Islamic financing.

“There is interest in debt and equity funding as sources of capital,” he notes, however. “Equity portfolio management is growing.”

One major hurdle is taxation law. “Islamic finance’s very low penetration ... is largely due to the Australian tax legislation,” says Mr Regan. One such obstacle is the stamp duties applied to property transfers, a particular issue when Islamic finance requires multiple transfers of assets.

(The National / 26 Oct 2013)

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