finsia seminar islamic finance challenges and opportunities march 2010

Chaaban OmranDirector-MCCA Asset Management Limited

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Copyright (C) by Muslim Community Co-operative (Australia) Ltd. All rights

reserved.

Towering Strength

The Sky is the Limit

Solid

Inspirational

Open to All


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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


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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


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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


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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


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.


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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


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


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380.3003929

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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


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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


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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.


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Education critical

Opening new markets and industry

Creating Jobs, an alternative avenue for Wealth Creation. Not a matter if but when

Thank you…

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finsia seminar islamic finance challenges and opportunities march 2010

Documents

future of islamic finance

nonislamic finance

islamic law

australia conclusion

islamic banking license

islamic state premise

islamic superannuation

allcopyright c