Presented at the College of Law in August 2010

1. Islamic Finance – Challenges & Opportunities
Chaaban Omran – Chief Executive Officer

2. 1
About Crescent Investments Australasia
Newly established specialist investment firm focused on Shariah Compliant Australian wealth
management products
― Wholesale
― Retail
― Superannuation
Crescent Investments is focused on product design and distribution of Shariah compliant
investments
― Shariah Compliant Australian Equities
― Shariah Compliant Direct Property
― Shariah Compliant International Equities
― Shariah Compliant International Direct Property

3. 2
About Crescent Investments Australasia
Current focus for Crescent Investments Australasia –
Shariah Compliant Australian Equity Fund
― Appeal to International Investors for Australia as
an ideal investment destination
― Appeal to Industry Superannuation Funds
― Appeal to Research Houses
― Appeal to Financial Planners to get onto their
recommended fund platforms

4. ― Introduction
― The story so far... Headlines and latest development
― The Australian Market and the Landscape
― What is “Shariah Compliance”?
― Challenges
― Education: What is Islamic Finance?
― Key Legislative Challenges - Taxation
― Opportunities
― Islamic Finance
― Wealth Management
― Creating Jobs
― Way forward & Conclusion
College of Law – 9th September 2010
Agenda
Islamic Finance – Challenges and Opportunities
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5. 4
The Story so far...
Headlines in the press

6. The Story so far...
Headlines in the press
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Australia is missing out on a huge market in Islamic
financing

7. ― JOINT MEDIA RELEASE WITH SENATOR THE HON NICK SHERRY
ASSISTANT TREASURER (from the desk of) The Hon Chris Bowen
MP (Speech transcript) NO.037
― BOARD OF TAXATION TO REVIEW AUSTRALIA'S TAX LAWS
TO ENSURE ISLAMIC FINANCE MARKET CAN EXPAND
― “The Assistant Treasurer, Senator Nick Sherry and the Minister for Financial
Services, Corporate Law and Superannuation, Chris Bowen, today announced
that the Board of Taxation would undertake a comprehensive review of Australia's
tax laws to ensure that, wherever possible, they do not inhibit the expansion of
Islamic finance, banking and insurance products.” 26 April 2010 (Delivered in Abu
Dhabi and Qatar)
― Islamic Finance Publication, Trade Commission – Hon Simon
Crean
The Story so far...
Latest development at government level...
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8. 7
Australian Muslims – some facts
― Our estimates of up to 500,000 Muslims across 73,000 households;
― As a demographic group, recorded the second fastest growth rate of 40.2% since
the 1996 Census;
― 50% of domiciled in the state of New South Wales („NSW‟), whilst 33% are resident
in Victoria;
― 49.5% are below the age of 24, in comparison to 34.7% of their non-Muslim
counterparts;
― Collectively represent an annual household purchasing power of A$3.3 Billion, up
from A$1.3 Billion in 1996;
― Collectively:
― faster growing;
― Younger;
― mostly domiciled in NSW and Victoria. Data based on last census (2006)

9. 8
•Internationally the global finance industry is estimated at $US822
billion in 2009 (Standard & Poors, Islamic Finance Outlook 2009,
12 May 2009, p5)
•Islamic Finance will be used by our government so that Australia
can be a global financial services centre of SEA
•Australia to develop resources-related services and infrastructure
via Sukuk, Murabahah and Ijarah
•Australia‟s Muslim Population 365,000 (1.75 of total population (at
2006 Census) exceeds the combined Muslim population of Hong
Kong and Japan and is more than half of that of Singapore (Islamic
Finance publication – Trade Commission p05)

10. ― Set of principles that adhere to Islamic Law which is sourced
from the Quran and the sayings of Prophet Mohammed
which prohibits “Interest”*
― Shariah Compliant Finance & Investments– next wave of
highly refined ethical investing
― Asset based transactions that need to be seen as
“Innovative” and not as a threat to financial services or
religious overtones
― Proven; it‟s not smoke and mirrors
― *Note: “Interest” is also referred to as “Usury” in the Old Testament and
is also prohibited in many other religions.
What is Shariah Compliance?
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11. ― The underlying tradable commodity must be an asset;
substitution of real resources for money: MONEY CANNOT
MAKE MONEY
― 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. Risk is shared between all parties.
What is Islamic Finance?
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12. ― 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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What is Islamic Finance?

13. ― There are many types of contracts for innovative product development
― Murabaha: Investor charges cost plus markup
― Mudaraba: Client shares the profits
― Musharaka: Partnership of the asset
― Ijara: Rent/Lease to own (A$0.5B written in 7 years under UCCC, over
3,000 contracts)
― Sukuk: Securitisation of an asset – huge market worldwide, especially
Malaysia
― Takaful: Insurance based on mutual aid concept
― Wakala: Charging of fees to hold an asset
― Funders/Banks/Financiers can join in the profits as well as
increases in both equity and asset values over time-this
creates risk sharing
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Islamic Finance - Opportunities

14. Key Legislative Challenges affecting
Islamic Banking and Finance
―Although the transactions are asset based, their purpose if
to provide finance
―This generates taxation implications
―Today any asset acquired for commercial reasons
generates impacts to:
― Income Taxation (“Rental” versus “Interest” deductions)
― Capital Gains Tax (no tax on gains since the essence of the
transaction was for finance purposes
― Goods and Services Tax (commercial property)
― Double Stamp Duty (Removal of stamp duty by Victorian State
Government: Insertion of S57A to S57F of the State Taxation Acts (Amendment)
Act 2004)
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15. Summarising Islamic Finance
Opportunity
― So far in Australia with very limited products and using workarounds on
the UCCC legislation, there have been A$0.5 B in Ijara contracts (Lease
to Own contracts)
― A lot of interest is being shown from overseas Islamic Banks to enter the
market
― Shariah Compliance concept – better than Ethical since the rules are
divinely inspired
― Great opportunity for non-geared Property Funds
― Dow Jones Islamic index has consistently outperformed pre, during and
post GFC
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16. 15
Wealth Management – Equity Opportunities
― The global Islamic fund assets stagnated at $52.3 billion in 2009,
remaining at almost the same level as the $51.4 billion posted in 2008,
according to a report by Ernst & Young (E&Y)
(http://www.tradearabia.com/news/bank_180945.html)
― The following businesses are generally excluded (to name but some):
― Alcohol
― Tobacco
― Pork - related products
― Conventional financial services (banking, insurance, etc.)
― Weapons and defence
― Entertainment (e.g. casinos/gambling, pornography etc.)
― Dow Jones Islamic Index outperformed conventional Indices during GFC

17. 16
Shariah Compliant Portfolio Characteristics
Portfolio Composition as at Jun-10
Resources
23%
Basic Materials
9%
Retail
9%
Industrial Services
41%
Cash
18%
CrescentShariah Compliant Equity
Fund
ASX300 Composition as at Jun-10
Resources
24%
Basic Materials
3%
Retail
8%
Industrial Services
4%
Property
6%
Financials
32%
Telcos
4%
Other
19%
Source: Sigma Funds Management
Note: No financials and geared
property sectors

18. 17
Shariah Compliant Portfolio Characteristics
Portfolio Composition as at Jun-10
Small Caps
53%
Large Caps
29%
Cash
18%
Crescent Shariah Compliant Equity Fund
Portfolio Composition as at Jun-10
Small Caps
8%
Large Caps
92%
Source: Sigma Funds Management
Note: Greater exposure to Small Caps due to
type of allowable investments

19. 18
The Australian Islamic Superannuation market –
Main Target for Wealth Management
― Retirement savings (superannuation) trends in Australia:
― Mandatory for wage earners since 1992 – currently 9% of gross wage-possibly
up to 12% under the Cooper Review;
― Currently, over A$1 Trillion in superannuation assets that is forecast to double
within the next 7 year and triple 4 – 5 years thereafter;
― Dominant fund type: 186 public offer/retail funds – 32.4% of all Super assets;
― Average household superannuation holding = A$63,000;
― The Islamic superannuation market in Australia:
― Estimated market = A$3 Billion – A$6 Billion within 7 years;
―Choice legislation means that super easily
transportable/transferred-studies show that there will be a 90% take up once
products are available

20. Summarising Wealth Management
Opportunity
― Demand of A$3 B to A$6 Billion in Superannuation funds alone
― Shift from investing in Financial Services or highly geared entities into eg
Health, Resources and Industrials sectors
― Shariah Compliance concept – better than Ethical since the rules are
divinely inspired
― Great opportunity for non-geared Property Funds
― Dow Jones Islamic index has consistently outperformed pre, during and
post GFC
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21. ― Islamic Finance Training and Education
― Products and courses (La Trobe & Monash)
― Islamic Finance for newcomers (broad)
― Legal Advice; lawyers and legislators (Zaid Ibrahim has established itself in
Melbourne)
― 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 & thinktanks
Opportunities: Opening Markets & Creating Jobs
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22. ―Challenges
―Education and Awareness on Islamic
Banking, Finance & Investments
―Address Taxation implications
―Opportunities – New Innovative Markets
―Islamic Banking
―Islamic Finance
―Wealth Management
Way forward for Australia
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23. Thank you
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Way forward for Australia