In the global Islamic economy, Australia is best known as an exporter of halal products. Last year it sold $ 1.45 billion worth of meats to the countries of the Organization of Islamic Cooperation, in addition to $ 1.72 billion in grains, live animals and dairy products.

At home, Australia’s domestic Islamic economy will soon get a boost with the launch of the country’s first fully-fledged retail Islamic bank.

IBA, which will represent Islamic Bank Australia, hopes to receive its banking license from the Australian Prudential Regulation Authority (APRA) in early 2021, according to chief executive Dean Gillespie.

“COVID was an unexpected delay, but we are working on licensing and launching,” Gillespie told Salaam Gateway. “On top of that, we plan to take on customers. We have a long waiting list.

Once licensed, the IBA banking app will be available on both Android and Apple’s iOS. Users will be able to register with a driver’s license, passport or other identification.

The lender also plans to open a physical branch in Sydney, New South Wales, where it is headquartered.

“We will be offering retail term deposits as well as real estate finance via murabahah and waning mashraka,” said Gillespie, former head of loan sales at the Commonwealth Bank and head of mortgages at Bankwest. “In the longer term, we plan to offer financing to SMEs.

A long-term goal is to offer managed funds, small business finance, and advisory services. Gillespie also said that IBA is considering zakat and waqf in the longer term, as these areas represent great opportunities.

ISLAMIC FINANCE IN AUSTRALIA

The beginnings of IBA date back to 2012, when it was founded by a group of Muslim Australians. However, the project really kicked off in 2017 and 2018, according to Gillespie.

A group of Australian Muslim investors provided 50% of the capital while the other half came from an undisclosed investor based in the United Arab Emirates. IBA’s seed capital was A $ 20 million ($ 14.6 million).

Well-known Australian researcher Dr Rashid Rasheed, who holds a PhD from Macquarie University Law School, chairs the bank’s Sharia Board of Directors.

In addition, Sultan Choudhury, former CEO of British bank Al Rayan, is a director.

Fortunately for IBA, this will not start from zero assets or Islamic finance awareness.

Islamic financial assets are estimated at at least $ 2 billion in Australia. There are two major financial institutions: Crescent Wealth provides Islamic retirement and investment services, and MCCA offers Sharia-compliant mortgages.

“Australia can be conducive to Islamic finance, with the abundance of real assets, economic stability, a strong legal framework, especially with investments in the private equity sector,” said Maya Marissa Malek, CEO of Dubai-based Amie Advisors, who is familiar with Australia’s Islamic finance industry.

Conventional institutions, including the National Australia Bank, also offer Islamic financial services. Non-bank financial institutions like Hejaz Financial Services, Amanah, and Islamic Co-Operative Finance Australia also offer Sharia-compliant services.

IBA TARGET CUSTOMERS

IBA’s main customers will be Australia’s growing Muslim population, according to Gillespie.

Muslims composed 2.6% of the population of 26 million, according to the last census of 2016. This is an increase from 2.2% in the census of 2011.

“This figure is expected to rise to 3% in the next census in 2021. In addition, around 40% of the Muslim population was born in Australia; about 60% are immigrants, ”said Gillespie.

“In addition to Muslims, we seek to target ethical clients unhappy with existing lenders,” he added.

IBA has already started to market itself as “Australia’s ethical bank for Muslim Australians”. It will have environmental, social and governance (ESG) initiatives, according to the CEO.

“We will take part of the profits for ESG causes like planting trees,” he said.

In terms of demographics, digital customers are typically between the ages of 20 and 50. As a result, IBA primarily seeks to target people in their 20s and 30s who are looking to build deposits.

REACTION

Industry and customer response to IBA has been generally positive.

Melbourne-based Halima Tatiana Craven, a catering specialist for a global company that supplies equipment to the hospitality industry, said she was intrigued by IBA.

“I am surprised that it took so long for an Islamic bank to form in Australia,” she said. “I’ll watch it when it’s available.” The Muslim population is not well served.

Almir Colan, director of the Australian Center for Islamic Finance (AUSCIF), said the establishment of IBA is good news as competition benefits the development of the Islamic finance industry as well as the community at large. .

“There is potential as long as there is trust and an understanding on the part of customers of how things are done and communicated,” he said.

While the general population’s perception of an Islamic lender will play a role, the bank’s actual offers will prove to be more important.

“I don’t know what kind of perception, politically and racially, the Islamic bank will have,” Craven said. “On the whole, the general population doesn’t care if it’s Islamic or conventional as long as it’s competitive in terms of price and service.”

She added that it would be good if they offered beyond the basics of deposits and real estate finance.

“Something available in the sukuk or ethical investing would be attractive,” she said. “In addition to the growing importance of ESG, transparency will appeal to everyone.”

CHALLENGES

IBA will enter a relatively young Islamic finance market which still faces major challenges.

Maya Marissa Malek said some widely used Sharia contracts and structures face implementation challenges in order to fit within the legal framework.

“As a result, additional mechanisms and changes need to be put in place in order to achieve the same economy without compromising Sharia compliance and at the same time be legally valid and enforceable under Australian laws,” said the expert. in Islamic finance. “Therefore, this development process takes longer.

In addition to the implementation, the Australian tax system makes Islamic products and services more expensive.

“Some of the challenges of Islamic finance in Australia relate to the tax treatment of certain Sharia contracts and transactions that can make Islamic products more expensive and less competitive,” Malek said.

She said it is important to ensure that the legal framework makes Islamic finance competitive and can operate on a par with conventional finance.

“To change, it may take time because it has to go through long processes at government level. “

On the front line, the situation is not unique to Australia and is similar to the experiences faced by new or young Islamic banking sectors, which makes having Sultan Choudhury as director invaluable for IBA given his experience. with the UK’s leading Islamic retail bank since its inception. in 2004.

But Australia is its own single market and as a pioneer IBA must manage the expectations of its own milestones and parameters for success.

MANAGE EXPECTATIONS

“Most conventional banks finance around 50% from deposits,” said Almir Colan. “The rest comes from other areas like money markets. So if IBA can reach 25% of its real estate financing needs through deposits within five years, I would consider that a huge success. “

Colan doesn’t think fintech alone can offer a better solution if it isn’t fundamentally a different way of doing banking.

“It’s easier to go digital when clients feel there is a relationship of trust with the institution,” he said.

On top of that, he said that a banking entity accepting deposits and offering real estate finance is a completely different business model than offering investment services.

“I would advise anyone new to a business model to focus and master one area first before moving on to another.”

Malek points out that even with IBA, Australia’s Islamic financial industry will need more time to develop.

“I don’t see any Malaysian or Gulf Islamic banks moving to Australia yet, at least in the short term,” she said. “I think there will be a gradual introduction of product offerings. The growth of industry in Australia will depend on supply and demand, as well as its competitiveness against traditional financial products.

LONG-TERM IBA PLANS

Gillespie said the original plan was to launch, expand and break even within three years.

He argued that due to IBA’s structure, it has a competitive advantage over conventional banks and other institutions offering Islamic financial products.

“We have a low cost approach and are primarily cloud driven, so we can keep our costs low and generate profits faster,” he said. “We will be able to offer competitive prices in line with the rest of the market. “

IBA is currently raising more capital for its growth and discussions are underway with investors in the United Arab Emirates and Asia, according to the CEO.

Over the next 12 to 18 months, it will employ 50 people and plans to increase its workforce.

In the longer term, IBA also plans to expand beyond its borders, according to Gillespie.

“We will consider entering countries like New Zealand and Canada once we are successful in Australia.”

(Reporting by Hassan Jivraj; editing by Emmy Abdul Alim [email protected])

© SalaamGateway.com 2020 All rights reserved