Finsia Seminar Islamic Finance Challenges And Opportunities March 2010
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Transcript of Finsia Seminar Islamic Finance Challenges And Opportunities March 2010
Chaaban OmranDirector-MCCA Asset Management Limited
1
Copyright (C) by Muslim Community Co-operative (Australia) Ltd. All rights
reserved.
Towering Strength
The Sky is the Limit
Solid
Inspirational
Open to All
Copyright (C) by Muslim Community Co-operative (Australia) Ltd. All rights
reserved.2
Introduction
Who is MCCA?
Timetable?
What is “Shariah Compliance”?
Demystifying Islamic Finance
Opening Up Markets
Creating Jobs
Way forward for Australia
Conclusion
◦ The Future of Islamic Finance in Australia will create wealth and jobs opportunities through its innovation available to all Australians using methods tried and tested for centuries
◦ Regulatory Approach – requires a level playing field between Islamic and non-Islamic Finance as well as maintain religious neutrality
◦ Growth via attracting Foreign Investment and players
Copyright (C) by Muslim Community Co-operative (Australia) Ltd. All rights
reserved. 4
Muslim Community Co-operative Australia was established in Feb 1989 where the founders aquired a car for a customer
7,500 members with $30m of assets on Balance Sheet
Today has financed over 100 properties in various Shariah Compliant style contracts
Removal of stamp duty by Victorian State Government: Insertion of S57A to S57F of the State Taxation Acts (Amendment) Act 2004.
Currently undergoing demutualisation
Holder of first Australian Retail Mortgage Investment Fund that is Shariah Compliant
Made submissions to Hon. Minister Chris Bowen and Trade Minister Hon. Simon Crean as well as Australian Financial Centre Forum (The Johnson Report)
Horizon
◦ 1 Year – Greater awareness, understanding and acceptance: Demystifying Islamic Finance
◦ 2 years – Basic Islamic Finance Regulatory Changes
◦ 3 years – First Islamic Banking License in Australia
Basic Banking Services – Accounts and Deposits
◦ 4 years – Investment Banking and Capital Markets
Copyright (C) by Muslim Community Co-operative (Australia) Ltd. All rights
reserved. 6
Set of principles that adhere to Islamic Law which is sourced from the Quran and the sayings of Prophet Mohammed
Shariah Compliant Finance & Investments–next wave of ethical investing – including Islamic Superannuation
Needs to be seen as “Innovation” and not as a threat to financial services or religious overtones
Proven; it’s not smoke and mirrors
Copyright (C) by Muslim Community Co-operative (Australia) Ltd. All rights
reserved. 7
Proven; it’s not smoke and mirrors: the credible history of Islamic Banking & Finance in practice (globally) for over 1,000 years under the Islamic State
Premise:◦ Riba or Interest is prohibited
◦ Asset based as opposed to cash based; money cannot make money;
Judaism
Christianity
Other religionsCopyright (C) by Muslim Community
Co-operative (Australia) Ltd. All rights reserved. 8
The underlying tradable commodity must be an asset; substitution of real resources for money
There are many types of contracts◦ Murabaha: Investor charges cost plus markup
◦ Mudaraba: Client shares the profits
◦ Musharaka: Partnership of the asset
◦ Ijara: Rent/Lease to own
◦ Sukuk: Securitisation of an asset
◦ Takaful: Insurance based on mutual aid concept
◦ Wakala: Charging of fees to hold an assetCopyright (C) by Muslim Community
Co-operative (Australia) Ltd. All rights reserved. 9
Islamic finance introduces such change:◦ It replaces the lone classical lending
contract with numerous finance contracts, ◦ Interest is replaced by: Profit rate on partnership finance, Markups on sale finance Rental rates on leasing finance
In Islamic finance based on partnership, focus would be on profitability and the rate of return of the concerned investment.
Copyright (C) by Muslim Community Co-operative (Australia) Ltd. All rights
reserved. 10
Islamic Partnership Finance Islamic banks hold equity to finance
business enterprises. Taking equity as partners in business
provides more information and free monitoring, removing information asymmetry and associated risks.
Islamic Sale & Lease Finance In sale and lease finance Islamic banks
provide goods and services, not cash, Both banks and the customers are equally
informedCopyright (C) by Muslim Community
Co-operative (Australia) Ltd. All rights reserved. 11
Self-Mitigated Risk◦ When the bank maintains ownership until
repayment is complete
◦ When a real assets involved: use as collateral, and pledge receivables.
Motivational aspects to the customer◦ Musharaka or Mudaraba, with a profit ceiling (they
know what they are in for during product life
Copyright (C) by Muslim Community Co-operative (Australia) Ltd. All rights
reserved. 12
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ASSETS DEPOSITS PROFIT EQUITY
AVERAGE ANNUAL
GROWTH 2000-2008
EIB
Source: Emirates Islamic Bank 2009
Banking◦ Accounts (Dividends versus Interest)
◦ Deposits (Mudarabah Deposits)
Wealth Management◦ Islamic Superannuation; treatment of Cash
Portfolios and minimum balance free from interest
◦ Islamic Insurance – “Takaful”
Finance◦ Property Acquisitions; Residential and Commercial
◦ Hire Purchase & Asset Facilitation
Information Technology◦ Systems, Software and Data; Global Linking, B2B, SOA
Copyright (C) by Muslim Community Co-operative (Australia) Ltd. All rights
reserved. 14
Islamic Finance Training and Education
◦ Products and courses (La Trobe & Monash)
◦ Islamic Finance for newcomers (broad)
Legal Advice; lawyers and legislators
Regulatory and Corporate Advisory Services
Council of Islamic Finance – Australia
Sales Force – Banks and Mortgage Managers
Information Technology Research and Development Investment
Government Supervision
Audit, Accounting & Taxation – ATO and Tax Practices
Management and Operational processes
Leadership and Strategy
Islamic Finance and Banking Associations
Copyright (C) by Muslim Community Co-operative (Australia) Ltd. All rights
reserved. 15
Islamic finance critical requirements◦ Ability to trade in goods and services◦ Ability to take equity within a wider latitude
◦ Islamic finance activities must be treated as financial activities for tax purposes
◦ Recognition of Islamic finance contracts by civil, commercial and financial-market laws.
Copyright (C) by Muslim Community Co-operative (Australia) Ltd. All rights
reserved. 16