With 62% of the world’s Muslim population on our doorstep, Islamic finance offers vast opportunities to Australia’s financial services sector.
These include opportunities to develop innovative Shariah compliant funds and superannuation products as well as banking and insurance products.
The development of a strong Islamic finance industry in Australia could be the ‘innovation’ that Australia needs to tap into the growing global Islamic finance market and to establish itself in the Asian Century.
Ultimately, this is all tied to Australia’s ambitions of becoming a financial services hub in the Asia Pacific region.
Growing Asian middle class = demand for financial products
By 2030, two thirds of the world’s middle class populations will be in Asia. The flow on demand for financial products will be significant.
Asia’s strong demand for Australia’s natural resources as well as education, tourism and agriculture industries is well-entrenched. As Asia’s economic development accelerates and its middle class expands, so too will the demand for resource based services and infrastructure.
For an overview of Islamic finance products and their features refer to Part 1 of this series – Introducing Islamic Finance.
Proximity to Asia and largest Muslim population in the world = competitive advantage
If Australia wants to succeed in Asia it must expand into new sectors and markets where we have a comparative advantage.
Our close proximity to Asia, particularly Indonesia gives us a natural competitive edge in developing a strong Islamic finance market. Indonesia has the largest Muslim population in the world and has featured prominently in recent submissions for the Government’s White Paper: The Asian Century. There is no doubt that enhancing Australia’s relationship with Indonesia will assist our nation in establishing itself in the Asian Century.
Australian Muslims = demand for Islamic products
Australia also has a large and growing Muslim population. The 2011 Census data revealed that Australia’s Muslim population is 476,300 (2.2 % of the population). As this segment of Australia’s population grows so too will the demand for Islamic finance products.
Most Muslims have been willing to use conventional finance where there is a lack of available Islamic finance options. However, the development of Islamic finance will provide Australian Muslims with financial products that are aligned with their value system.
New Islamic finance products also offer opportunities for the broader Australian population.
It is understood that the majority of investors in Shariah-compliant funds are actually non Muslims. This demonstrates that the availability of Islamic finance products will create greater consumer choice for all. Australian consumers generally (not just Muslims) will have the option to compare financial products on a number of criteria ranging from moral principles, investment style, cost, return and risks. This greater choice will benefit all Australians who are seeking alternative financial products.
Ideally it will also help develop an appreciation of what the Muslim world can offer among Australia’s broader community as well as triggering opportunities for foreign investment in Australia by our Muslim neighbours.
Innovation and change in mindset
Australia has a world class financial system underpinned by well trained professionals. Immeasurable opportunities exist for talented professionals to acquire skills in Islamic finance and lead the way across Asia Pacific and globally, with innovative financial products.
The Government recognised in its Issues Paper: What does the Asian Century Mean for Australia?, that leveraging Islamic finance opportunities requires ‘innovation and in some cases a change in mindset, direction and a willingness to develop new skills’.
Where to from here?
Australia’s position within the Asian Century is one of immense opportunity. Demand for Islamic finance products will grow exponentially over coming decades and Australia can choose to capture this chance with two hands.
However, the Government must address a number of regulatory challenges that are hindering the growth of Islamic finance in Australia. Otherwise, it risks missing the boat on this opportunity and its goal of becoming a financial services hub in the region.
The next instalment in this article series addresses the challenges facing the development of Islamic finance products and will be available shortly.