EASE LAWS TO ALLOW ISLAMIC FINANCE TO FLOURISH

The federal government is under pressure to tweak tax incentives that make it easier for the Islamic finance sector to flourish in Australia and allow greater cross-border transactions with Asia.

The Dubai-based global head of Islamic finance for law firm Allen & Overy, Anzal Mohammed, says there’s a push to encourage policy makers to ease regulations on such things as stamp duty and withholding tax so people who want to invest in Islamic-compliant funds don’t get hit with tax penalties.

Mohammed met Treasury officials in a bid to encourage such a move. It comes as the chairman of the Australian Financial Services Task Force, Mark Johnson, also recommended that impediments to Islamic finance be removed as part of the Board of Taxation review.

Islamic finance is based on the principles of Sharia law and bans the payment and receipt of interest. Investors instead need to make returns that are linked to profits and cannot invest in what Mohammed terms as “Sharia-repugnant” companies such as those associated with gambling, pornography or alcohol.

In early 2010, the federal government asked the Board of Taxation to review federal and state tax laws to ensure they did not unfairly disadvantage Islamic finance products.

While few bankers expect there to be a surge in Islamic finance even if the government changes any tax guidelines, Mohammed says it opens up the local market to more of these products by providing a “more level
playing field”.

“The key change we need is to the taxation regime to allow Islamic finance to develop,” Mohammed says.

“This discussion has been going on for a number of years and now everyone’s waiting to see what they [the government] do next.”

He also says Islamic finance is popular in countries such as Malaysia, so there may be more opportunities for cross-border transactions, as well as providing “more diversified funding sources” in an environment where there’s generally less liquidity.

He says government tweaks to legislation, whether federal or state, may change the state of play for wholesale investors but it’s not clear whether such changes will result in a bigger uptake in the retail market.

The major financial institutions are slowly moving into the Islamic finance space but a recent report by Austrade found Islamic finance is still a “nascent” industry.

The major banks are yet to offer retail investors comprehensive products and Australia’s first Sharia-compliant equity fund, Crescent Wealth, was only set up in October last year. The fund will begin offering products, including superannuation, tapping into the $1.4 trillion global Islamic investment market .

The Austrade report did note, however, that Islamic finance has potential for development, with Australia’s Muslim population hitting almost half a million and more than 60 per cent of the world’s Muslims located in the Asia-Pacific.

http://www.brw.com.au/p/sections/fyi/ease_laws_to_allow_islamic_finance_hIzXlz2To4Mas1iygJtKAI?

Australia's NSW revives Islamic finance push

The government of the Australian state of New South Wales, home to the country's financial capital Sydney, will send a group to Dubai this week to discuss ways to develop the Islamicfinance industry, officials said.

The delegation, led by New South Wales premier Barry O'Farrell and including financial services professionals, will explore regulatory and legal issues at a roundtable discussion with the Dubai Export Development Corp on Tuesday.

"The event will discuss business opportunities in New South Wales, with particular attention given to Islamic finance," an Australian government official, who declined to be named under briefing rules, told Reuters. The delegation will also visit Abu Dhabi and Lebanon.

With proximity to southeast Asia, where Islamic finance is growing rapidly,Australia could play a role in the industry, officials believe. But efforts to pass the necessary legislation at a federal level have been slow, so the state government wants to get involved.

"The state government is very interested and trying to be proactive in getting Middle East and local players together to work out a deal," said Salim Farrar, senior lecturer at the University of Sydney Law School.

Passing legislation governing Islamic finance will require a series of politically charged debates, Farrar said.

But support is building in the business community, said Talal Yassine, managing director at Sydney-based Crescent Wealth. "Clearly there is going to be a push to get Islamic finance up in Australia."

TAX

Australia faces a challenge shared by other jurisdictions new to Islamic finance: taxation. Certain Islamic finance structures, particularly sukuk or Islamic bonds, can attract double or even triple tax duties because they require multiple transfers of title of the underlying asset.

Obtaining tax amendments to alleviate this appears difficult to push through the minority government of Australian Prime Minister Julia Gillard.

"At the federal level developments are going nowhere fast," said Matthew Stutsel, national head of taxation for consultants KPMG in Sydney.

The Australian Board of Taxation released a discussion paper in October 2010 which prompted consultation meetings and submissions. The final review was delivered to the government's assistant treasurer last June. But no further action has been taken, and the public release of the report "is a matter for the Government to decide", a Board of Taxation statement said.

The government's attention has been focused on mining and carbon tax initiatives, and an attempt to deliver a budget surplus; extending tax breaks in other areas might not sit well with voters. Elections are due in 2013.

But while federal-level discussions have been difficult, New South Wales is interested in Islamic finance partly because of the need to fund state projects such as upgrading railway networks and refinancing public utilities. Islamic investors operate large pools of investment funds in southeast Asia and the Gulf.

Attracting investment into infrastructure and other sectors is an important part of the state government's efforts to position Sydney as a leading international financial centre, the Australian official said.

Stutsel said work was being done within the state government on infrastructure proposals. "The issue is largely going to be withholding tax on sukuk, where we would be looking to leverage a tax law change," he said.

Tax incentives might, for example, be offered for Islamic investors in public-private partnerships. Typically, 10 to 15 percent of New South Wales infrastructure has been delivered using PPP, according to a government report. Granting special tax treatment for such projects cold avoid the need for a full tax amendment. (Editing by Andrew Torchia)

http://www.reuters.com/article/2012/05/13/islamic-finance-australia-idUSL6E8F10H120120513

Australia to Get First Islamic Index

• By Geoffrey Rogow

Thomson Reuters is on the brink of giving Australia its first Islamic index.

Starting in early February, Thomson Reuters and Australia’s Crescent Wealth are jointly launching Islamic Australia Index — a research-based index that will offer local and international investors a tool to help invest in accordance with Islamic investment principles in the local market.

The initiative comes ahead of an expected government proposal to change tax guidelines to help open up the local market for Islamic investment products, though there remains some concern about the market’s growth potential. 

Called the Thomson Reuters Crescent Wealth Islamic Australia Index, the measure will cover 143 stocks with combined market capitalization of 160 billion Australian dollars (US$168 billion). The companies are screened to ensure they adhere to Sharia law. Islamic finance prohibits the earning of interest, choosing to focus instead on the buying and selling of tangible assets such as property under the principles outlined within Sharia law.

“Creation of the index is a key step toward positioning Australia as an attractive destination for global Islamic investment funds. It is estimated Islamic banking assets globally now exceed US$1 trillion, and that there is US$50 billion in managed funds investing in equities according to Islamic principles,” said the firms in a joint statement.

http://blogs.wsj.com

Islamic Finance Heads Down Under: Australia Launches its First Islamic Finance E-Learning Program

Ethica Institute and La Trobe University Launch Australia's First Ever Islamic Finance E-learning Program

DUBAI, UAE - December 6, 2010

How do you bring Islamic finance to the far corners of the world? Ethica Institute in Dubai and La Trobe University in Australia have solved this problem.

Today Ethica, the Islamic finance training and certification institute, announced the launch of a new Islamic finance for-credit course at one of Australia's leading universities. This will be the first time ever that a 100% online course in Islamic finance is offered as part of an on-campus course. Enrolment for the award-winning Islamic Finance Professional Development (IFPD) course is now open and online classes begin next month on January 15, 2011.

The international education industry is Australia's largest services export, contributing over 550,000 students and $12 billion annually to the country's economy. Moreover, the Australian government actively began promoting Islamic finance in recent years by exploring tax neutrality for Shariah-compliant products.

La Trobe University's Associate Professor Ishaq Bhatti said, "With Ethica, our Islamic finance program now extends far beyond our physical campuses. For the first time ever, we now tap into the tremendous demand for Islamic finance from students all over the world." This year, La Trobe's Islamic finance program won numerous awards including the prestigious Australian Learning and Teaching Council (ALTC) Award for excellence.

Ethica's Managing Director, Atif Khan said, "E-learning is the best way to address Australia's growing demand for certified Islamic finance graduates. La Trobe is already a pioneer in the field with one of the world's only Master’s programs in Islamic banking and finance, and now with an e-learning component, they scalably grow their campus across the globe."

Earlier this year Mashreq Bank rolled out Ethica's e-learning program across its entire Islamic banking network. Dow Jones affiliate Zawya.com and New York based Banker's Academy also signed on with Ethica recently.

About Ethica Institute of Islamic Finance: In 2010, Ethica (www.EthicaInstitute.com) was chosen by more professionals for Islamic finance certification than any other organization in the world. The Dubai-based institute received the award nomination for "Best Islamic Finance Training Institution" in 2009 and 2010 by Islamic Business and Finance Magazine. Ethica's clients include banks, universities, and professionals in over 20 countries.

About La Trobe's Islamic Finance Professional Development (IFPD) course: Recipient of the prestigious ALTC 2010 Award, La Trobe's Islamic finance program is the first university-level Islamic finance program in Australia. Enrolment for the program is now open on a first-come, first served basis with online classes beginning next month on January 15, 2011. To learn more, visit http://www.latrobe.edu.au/lawman/ifpd or contact Almir Colan at A.Colan@latrobe.edu.au.

For more information about this article, or to schedule an interview with Ethica Institute of Islamic Finance, please call Sameer Hasan at +971-4-305-0782 or e-mail atinfo@ethicainstitute.com.

Australia Seeks Tax Changes to Promote Sukuk

Oct. 20 (Bloomberg) -- Australia plans to change laws to ensure Islamic finance products are taxed fairly as the government seeks to attract investors from the Middle East and Asia, paving the way for sukuk sales.

The national taxation board will hold talks next month in Sydney, Canberra and Melbourne on how to best ensure that Islamic finance transactions are treated the same as equivalent non-Islamic deals. The board noted this month that mortgages that comply with religious principles may lead to stamp duty being paid twice, as the financier buys the property and then sells it to his client. Under a conventional mortgage there is only one sale that attracts the duty.

While Australia’s 365,000-strong Muslim population is 2 percent the size of Malaysia’s, the largest sukuk market, making the industry more accessible would generate demand, the government has said. Australia is looking to join countries from Egypt to South Korea in seeking to ease barriers to Shariah- compliant products and tap the industry’s $1 trillion in assets, which the Kuala Lumpur-based Islamic Financial Services Board predicts will reach $1.6 trillion by 2012.

“Islamic finance is a rapidly growing part of the global financial system and Australia is in an excellent position to capitalize on that growth,” Assistant Treasurer Bill Shorten said in an e-mail response to questions from Canberra on Oct. 18. Islamic finance will provide Australia with access to more offshore capital, he said.

Natural Resources

Australia’s natural resources will provide companies seeking to sell sukuk with the underlying assets to back the debt and conform to the religion’s ban on interest, according to Zaid Ibrahim & Co., Malaysia’s biggest law firm.

Middle East money managers are interested in Australia investments that offer higher yields than most developed markets as well as potential returns from gains in the currency. Australia’s dollar advanced 7.1 percent this year against its counterparts among the Group of 10 currencies, second only to the yen.

“Australia wants investment from Gulf countries and that’s the reason they are taking it very seriously,” Abu Umar Faruq Ahmad, chairman of the Shariah Supervisory Board at the Sydney- based Islamic Co-Operative Finance Australia Ltd., said in an interview. “I see a lot of interest from the Gulf,” said Ahmad, who is also an assistant professor of Islamic finance at Hamdan Bin Mohammed e-University in Dubai.

There are a small number of companies offering Islamic financing in Australia, the tax office said this month, including the Muslim Community Cooperative Australia, a Melbourne-based mortgage provider, and Islamic Co-Operative Finance Australia.

‘Tweak Regulations’

Australia’s tax office will report by June 2011 on how the government can ensure the industry gets equal level of treatment, the government said on its website on Oct. 13.

“Islamic finance is a booming sector and Australia should be part of the action,” Trade Minister Simon Crean said on Feb. 12 in Melbourne.

Malaysian law firm Zaid Ibrahim, which has offices in Sydney and Melbourne, is advising “a few” Australian companies on overseas sukuk issuance and Middle East investors looking to buy Islamic assets in Australia, Chairman Nik Norzrul Thani said in a phone interview on Oct. 18 from Jakarta.

“It’s very important for them to understand that they may need to tweak regulations a bit to facilitate sustainable Islamic finance” businesses, said Nik. “An amendment is needed to create a neutral playing field, and so having tax neutrality as opposed to tax favoritism.”

Limited Demand

Demand for sukuk will be limited in Australia because the market is small, according to George Boubouras, head of investment strategy at UBS AG’s Australian wealth-management unit.

“At this stage, it’s not influential, but it’s a structure that can grow going forward,” he said in an interview from Melbourne this week.

Global sales of sukuk, which pay asset returns instead of interest, fell 23 percent to $12 billion in 2010 from the same period a year earlier, according to data compiled by Bloomberg. Issuance totaled $20.2 billion last year, up from $14.1 billion in 2008.

Shariah-compliant debt returned 12 percent this year, according to the HSBC/NASDAQ Dubai US Dollar Index, while bonds in developing markets gained 16 percent, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows.

The gap between the average yield for global sukuk and the London interbank offered rate has narrowed 14 basis points this month to 359, according to the HSBC/NASDAQ sukuk index. The spread widened eight basis points yesterday and shrank 109 basis points so far this year.

Tax Implications

The yield on Malaysia’s 3.928 percent Islamic note due in June 2015 has dropped 23 basis points to 2.48 percent this month, prices from Royal Bank of Scotland Group Plc show. The yield difference with the Dubai Department of Finance’s 6.396 percent sukuk due in November 2014 widened 16 basis points this month to 387. The gap widened 17 basis points yesterday.

Asian Finance Bank Bhd., the Kuala Lumpur-based unit of Qatar Islamic Bank SAQ, is working with the government in New South Wales as an advisor for Islamic financial services and held meetings with Australian government officials, Mohamed Azahari Kamil, head of the lender, said in an interview yesterday.

“They are looking at the possibility of all the tax implications because to develop Islamic finance they have to ensure tax jurisdiction is much better than the conventional,” Mohamed Azahari said.

‘Stimulate Discussion’

To compete with Singapore and Hong Kong as a regional financial hub, Australia needs fewer rules and lower taxes on overseas investors and financial institutions, the Australian Financial Centre Forum said in a Jan. 15 report.

Companies including Westpac Banking Corp. are already offering Shariah-compliant products to tap demand from Islamic investors for Australian assets.

LM Investment Management Ltd., based in Queensland, started LM Australian Alif as Australia’s first Shariah-compliant fund, according to its website. Westpac Banking began offering nationwide commodity-trading services targeting Islamic institutions in February.

Next month’s talks will help the government’s plans to give Islamic finance providers the same opportunities as conventional debt buyers as Australia seeks to attract investors from Asia and the Middle East, Shorten said.

--With assistance from Lisa Pham in Sydney, Khalid Qayum in Singapore and Haris Anwar in Dubai. Editors: Simon Harvey, Garfield Reynolds.

To contact the reporters on this story: Soraya Permatasari in Kuala Lumpur at soraya@bloomberg.net; Marion Rae in Canberra at mrae3@bloomberg.net.

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.

Islamic finance natural fit for Australia

SYDNEY - Australia's wealth of natural resources and financial landscape provide a natural platform for Islamic finance, with potential to attract a new type of global investors, an official with Malaysia's stock exchange said.

Trailing Muslim neighbours such as Malaysia and Indonesia, Australia is looking at developing Islamic finance to attract wealth and create jobs.

The Australian and Malaysian governments held talks this week to cooperate in shariah finance to help Australia crack into the $1 trillion Islamic finance industry.

"Infrastructure funds and a lot of leasing funds are by nature attracted to acceptable shariah principles and real estate investment trusts (REITS) can be quite easily converted as well," said Raja Teh Maimunah, global head of Islamic markets at stock exxchange operator Bursa Malaysia.

Islamic finance, derived from sharia, or Islamic law, forbids charging interest and favours profit-sharing arrangements or structures that resemble rental agreements.

Islamic financing is usually underpinned by physical assets. More countries have been exploring Islamic banking since the global financial crisis, which was fueled largely by poor asset quality and complex financial derivatives.

But there is also some scepticism about the system, with critics dismissing it as conventional banking cloaked in religious language.

Raja Teh said in an interview on Wednesday, during a visit to Australia, that there were sharia finance opportunities in Australia's mature asset-backed securitisation market.

Australia's residential mortgage-backed securities is the third largest in the world with A$176 billion on issue. Moreover, Australia's abundance of natural resources, such as gold, iron ore, copper, gas would also provide a suitable fit to sharia commodity sale contracts, called murabaha.

"Australia has a lot of supply of natural resources which can quite easily be used for the concept of commodity murabaha," Raja Teh said.

Under a murabaha deal, an Islamic bank buys an asset from a third party and sells it to its customer at a cost-plus profit. This allows the bank to extend financing without charging interest, which the religion forbids.

The Australian government has expressed interest in Islamic finance but so far it is limited to small entities such as the Muslim Community Cooperative (Australia) Ltd and Iskan Finance which offer home loans.

One of the biggest obstacles to the development of Australia's Islamic finance market is tax law.

"Anything from (capital) gain tax, stamp duty, withholding taxes (would need to be changed) because typically an Islamic transaction would involve, say, a sale-and-lease-back and that would attract gain tax and stamp duty," said Raja Teh.

She sees potential demand from global investors keen on shariah compliant products to diversify their portfolios.

"For emerging Asian investors, this is an opportunity to get into a first world market within Asia Pacific," Raja Teh said.
Link: http://business.maktoob.com/20090000405370/Islamic_finance_natural_fit_for_Australia/Article.htm

New products signal growth in Islamic finance in Australia

Australia's first Shariah compliant fund, developed by a local fund manager to attract Islamic investment globally – the LM Australian Alif fund (PDF link) – was recently launched by LM Investment Management Ltd. MCCA Asset Management (PDF link) has also announced a Shariah compliant, retail managed investment mortgage fund, to be officially launched this month.

These products reflect a growing demand, both globally and in Australia, for Shariah compliant financial products.

Within Australia's financial services industry, the National Australia Bank has committed $15 million to introduce 'Muslim-friendly' loans, while Melbourne-based La Trobe University recently launched a Masters of Islamic Banking and Finance degree.

Australia’s geographic position presents an important window to a rapidly growing and accessible Islamic market.

Gary Johnston, National General Manager Financial Services for Austrade, said that the widely recognised strengths of Australia’s industry in retail and commercial banking see the country well placed to take advantage of this opportunity.

"Australia is known for its expertise in more complex financial engineering and experience in infrastructure, property, resources and agricultural financing," Mr Johnson said. "These are all skills which are needed in the development of Islamic financial products."

Link: http://www.austrade.gov.au/default.aspx?FolderID=2791&ArticleID=11242

Fahour moves to Islamic banking

FORMER National Australia Bank executive Ahmed Fahour will join Middle Eastern Islamic investment bank Gulf Finance House as its chief executive, after his chance to run Rudd Bank was squashed in the Senate.

Mr Fahour, who ran NAB's Australian operations until he was overlooked for the chief executive's post last year, will move with his family to GFH's headquarters in Bahrain, starting in the new job on August 1.

He has been searching for a new role since the Coalition and the Greens used their numbers in the Senate to vote down the Australian Business Investment Partnership.

The partnership, which was instantly dubbed Rudd Bank, was designed to fund commercial property projects jeopardised by the withdrawal of foreign lenders from the Australian market.

Mr Fahour resigned from NAB in February when he was appointed by Wayne Swan to run the partnership, which would have drawn $4 billion from the big four banks and billions more from government.

NAB chief executive Cameron Clyne effectively pushed Mr Fahour out of the bank by taking his job himself.

A Treasury source said Mr Fahour would have been paid about $250,000 a year for the Rudd Bank role and was likely to have received a pro rata payment for his time at the body. The source could not say whether a replacement for Mr Fahour would be appointed, with the future of Rudd Bank still unclear.

The appointment of the Lebanese-born Mr Fahour, one of Australia's most prominent Muslim business leaders, to GFH comes amid growing interest in Australia in capturing part of the $US700bn ($871bn) Islamic finance market. Assistant Treasurer Nick Sherry launched a new masters course in Islamic banking and finance last week at La Trobe University, in Melbourne.

Gulf Finance chair Esam Janahi said in a statement that Mr Fahour, "as a Muslim, has an inherent appreciation of the Islamic values that underpin our work and the philosophy woven in GFH's key initiatives".

Mr Fahour said GFH had "a reputation for breaking the mould in originating excellent high-value investment opportunities".

GFH was founded 10 years ago specialising in a spectrum of financial products, including private equity, venture capital and asset management. Listed on the London, Kuwait, Bahrain and Dubai stock exchanges, it has a market capitalisation of $US710bn and is known in some circles as the Macquarie Bank of the Middle East. Mr Fahour, who served previously as a vice-chairman at Citigroup in New York and as head of its Australian operations, will help expand the group into Western markets.

One of the features of Islamic finance, which is based on sharia law, is that no interest is paid on loans. Instead, the two parties to a deal effectively share profits on the loan. With mortgages, the bank retains formal title over the property until the loan is paid off.

Link: http://www.theaustralian.news.com.au/business/story/0,28124,25805375-36418,00.html

Australia Sees Rescue in Islamic Finance

Grappling with a chocking financial meltdown, Australia is eyeing a share of the booming Islamic finance market to beat a growing recession and create more jobs.

Grappling with a chocking financial meltdown, Australia is eyeing a share of the booming Islamic finance market to beat a growing recession and create more jobs. "I think there's great opportunities such as Islamic finance," Chris Bowen, Minister for Financial Services, Superannuation and Corporate Law, told the Sydney Morning Herald on Monday, June 8. He said Sydney is seeking to take a portion of the booming Islamic finance market from Asia. "The majority of the world's Islamic population lives in Asia, and Singapore and Kuala Lumpur are trying to corner this market for themselves," he explained."I think Australia can play a role." Islamic finance is one of the fastest growing sectors in the global financial industry. The Islamic banking industry, which began almost three decades ago, has made substantial growth and attracted the attention of investors and bankers across the world. Currently, there are nearly 300 Islamic banks and financial institutions worldwide with assets predicted to grow to $1 trillion by 2013. Islam forbids Muslims from usury, receiving or paying interest on loans. Islamic banks and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork. Recession Beater Bowen, who was formerly the assistant treasurer, said luring Islamic finance would help rejuvenate the Australian economy and create more jobs. "Even if we only take a small percentage of the market it could generate a lot of wealth and a lot of jobs in Australia." A global financial crisis has swept the US and the world since September and knocked down Australian markets. Thanks to its transactions that don't deal in toxic assets or pay interests, Islamic finance institutions have managed to largely survive the crisis. Minister Bowen regretted that Australia has not yet passed a law allowing the operation of Islamic finance institutions. "This is just one example of the untapped opportunities out there for Australia." There are no Islamic banks incorporated in Australia. The country launched its first Shari`ah-compliant real estate fund in May in Bahrain with the aim of luring Muslim investors looking for opportunities in alternative investments and in new markets. "We are very good at managing money, and in superannuation we have the fourth-largest pool of funds under management in the world," Bowen said. "We've developed really good skills but we don't export those skills." Link: http://www.cibafi.org/NewsCenter/English/Details.aspx?Id=3714&Cat=0

Australian university to offer Islamic finance course

La Trobe University in Melbourne, Australia, is to be the first university in the country to offer a masters degree in Islamic commerce. The course will begin in February 2009 and will cost AU$17,000 (US$14,000), and will be either one or two years’ duration depending on the priority of the student. The course should appeal to international students from the subcontinent, and those countries in Asia which value learning about Shari’ah-compliant finance in the English language.

Eight subjects will be covered, including legal and Islamic jurisprudence, Islamic commercial law, Islamic banking, Islamic insurance, Islamic financial markets and general areas of finance. The course has been set up to respond to the expected growth in demand for staff in Islamic finance which, according to experts’ estimates, might require up to 50,000 extra employees in the next five to ten years. A number of banks in Australia are already active in Shari’ah-compliant finance, such as Kuwait Finance House (KFH) and HSBC. National Australia Bank (NAB), one of the country’s top financial institutions, has also been researching Islamic finance options, including buying into a Shari’ah-compliant industrial property trust. NAB has attempted to build bridges with the domestic Islamic community by setting up a scholarship in Islamic finance, named after Sheikh Fehmi Naji El-Imam, Mufti of Australia.

Hayat Khan, co-founder of the course at La Trobe University, believes that Islamic finance will account for 40 to 50 per cent of total savings of the worldwide Muslim population within a decade.