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Finsia Seminar Islamic Finance Challenges And Opportunities March 2010

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Delivered at Finsia in March 2010

Delivered at Finsia in March 2010

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    Finsia Seminar Islamic Finance   Challenges And Opportunities March 2010 Finsia Seminar Islamic Finance Challenges And Opportunities March 2010 Presentation Transcript

    • Chaaban Omran Director-MCCA Asset Management Limited Copyright (C) by Muslim Community Co-operative (Australia) Ltd. All rights reserved. 1
    • Towering Strength The Sky is the Limit Solid Copyright (C) by Muslim Community Inspirational 2 Co-operative (Australia) Ltd. All rights reserved. Open to All
    •  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 religions Copyright (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 asset Copyright (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 informed Copyright (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
    • 0.9952339 1.1270388 10.8316281 8 5 AVERAGE ANNUAL GROWTH 2000-2008 41 0.8 0.5564312 0.5244808 0.6 0.4821761 43 79 0.3824048 51 0.3257449 0.3003929 0.2717836 0.3076135 64 0.4 38 7 15 0.199517073 73 0.2 0 ASSETS DEPOSITS PROFIT EQUITY 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
    • Education critical Opening new markets and industry Creating Jobs, an alternative avenue for Wealth Creation. Not a matter if but when Thank you… Copyright (C) by Muslim Community Co-operative (Australia) Ltd. All rights reserved. 17