By Hakan Ozyon (pictured), Founder and CEO of Hejaz Financial Services
Australia prides itself on being a multicultural society.
But when it comes to simple services many of us take for granted, like finance options that comply with our ethics or culture, we’re still not the diverse nation we purport to be.
And this oversight isn’t just exclusionary – it represents significant money being left on the table, and a hit to our global competitiveness.
For instance, by 2050 Australia’s Muslim population will exceed one million, presenting an obvious growth market.
But conventional banking and investment practices, many of which involve interest (“riba”), are prohibited under Islamic law, ruling out traditional mortgages, conventional investment products, and interest-bearing accounts. Instead these require alternative structures such as sharia-compliant Islamic bonds (“sukuk”) profit-sharing arrangements, asset-based financing, and cost-plus financing (“murahaba”).
Yet because Australia currently lacks regulatory clarity for these types of Islamic financial products, providers are forced to navigate dual compliance frameworks. As one example, the sale and leaseback structure common in Islamic finance can result in double stamp duty charges.
This significantly increases operational costs and complexity, rendering Islamic financial products less competitive compared to conventional offerings and creating uncertainty for institutions and investors. And as a nation, that hurts.
The lack of Islamic-compliant investment vehicles limits our ability to draw in private equity and venture capital from the global Halal economy, which instead goes to regions like Malaysia and the UAE with more favourable regulations.
So genuinely embracing diversity in financial services – beginning with the $3 trillion global Islamic finance market – actually represents a massive untapped opportunity for Australia.
Our trillion dollar opportunity
Thanks to our strategic position in the Asia-Pacific region, simple regulatory changes could help us become a hub for Islamic finance for three compelling reasons.
Firstly, Australia has established itself as a centre of financial services activity, with Sydney ranking among the top 30 global financial centres. We have the largest pool of investment fund assets in Asia and place second in the Asia-Pacific when it comes to fintech. This existing financial infrastructure and expertise provides a strong foundation for developing specialised financial products and services.
Secondly, Australia’s geographic positioning provides strong intercontinental connections with neighbouring Muslim-majority countries, particularly in the Asia-Pacific region where Islamic finance has seen exponential growth. Predominantly Muslim countries like Malaysia and Indonesia have already demonstrated the potential of this market through supportive regulations and thriving domestic finance sectors.
Thirdly, our rapidly-growing Muslim community sets us up as a market open for business, and ready to produce Islamic financial products right here onshore. Local demand provides a strong foundation for developing sector experts and new products that could later be exported internationally, creating even more revenue opportunities.
All three of these reasons give us an advantage other nations don’t possess. But the opportunity is potentially even larger than the rapidly-growing Islamic market segment both onshore and offshore.
Because Islamic finance principles of ethical investment and risk-sharing are increasingly appealing to a broader market.
Recent research shows that younger generations are seven times more likely than baby boomers to pay a premium for ethically-produced products and services, including financial ones.
According to a Deloitte report, 63 percent of millennials believe their investments should reflect their social and environmental values – a trend that is also on the rise with even younger demographics.
In fact, a recent study found that customers who support corporate social responsibility practices now represent the vast majority of the market.
This means the demand for Shariah-compliant services could extend well beyond the Muslim community alone and include millions of ethically conscious consumers.
So how can we as a nation reap the ample rewards?
Taking a coordinated approach
Over my career in financial services, I’ve seen firsthand the coordinated action required to drive sector growth internationally.
Regulators must eliminate double taxation on Islamic finance structures and provide clear regulatory guidelines for Shariah-compliant products, to significantly enhance their competitiveness and align them with conventional offerings.
Our financial institutions must help to establish supportive regulatory frameworks, investing in ethical innovation and encouraging workforce diversity will all help build a more robust and competitive industry.
And industry bodies, such as APRA, ASIC, the Reserve Bank, and the ACCC, must establish nationally-recognised Shariah governance and advisory boards to ensure consistent application of Islamic finance principles across institutions and products and support ethical compliance frameworks by streamlining licensing, providing educational resources, and championing ethical practices.
This coordinated effort between government regulators, financial institutions, and industry bodies is the only way to meet a common goal of creating a world-leading multicultural financial system that truly reflects Australia’s diverse society.
Not only would this position us as a nation that delivers on its promise of equal opportunity for all citizens, but it would also capture significant national economic value.
That is an outcome we can all stand behind, regardless of faith or cultural background.
