Australian tax laws should be amended to attract Islamic finance and other forms of alternative finance to benefit the economy, says CPA Australia.
In a submission to the Board of Taxation, CPA Australia says Islamic Finance will ultimately boost the Australian economy and help establish Australia as a financial services hub in the Asia-Pacific region.
Paul Drum, head of business and investment policy, CPA Australia, said attracting capital and investment through Islamic finance is a huge opportunity for Australia and would ultimately be good for economic growth.
‘Australia has emerged from the global financial crisis with strong economic position and a good regulatory regime. With our geographic position we are well placed to attract this increasingly significant component of global finance, and we need to take advantage of that,’ he said.
‘As a net importer of capital it is essential that we establish the right framework to attract and maintain a wide range of capital and financial products. Achieving this will be key to addressing many of our key economic issues including the funding of major infrastructure projects.’
Islamic finance is based on the principles of Islamic law (Shariah) which prohibits earning interest and instead focuses on profit sharing based on the buying and selling of tangible assets such as property.
‘Islamic finance offers huge potential for Australia’s financial services sector, but tax laws will need to be amended to accommodate other forms of alternative finance.
‘Some of Australia’s tax laws have a very specific legal based application which can exclude forms of alternative finance. Taking a broader economic and macro approach to policy in this area will be more beneficial and provide better long term benefits for Australia. It’s also more consistent with how tax law has developed in other areas such as taxation of financial arrangements.’
The CPA Australia submission also suggests Australia could adopt a similar approach to the United Kingdom, where only minor legal and regulatory reforms were required.
‘To achieve all of this will require significant work to align the accounting and tax treatment of Islamic and other alternative financial products. This must be a priority and CPA Australia looks forward to contributing to this process.’
OF MALAYSIA’S claims to fame, leadership in financial services is not an obvious one. Yet in some ways the country is the world’s most important Islamic-finance centre. Just over a fifth of the country’s banking system, by assets, is sharia-compliant; the average for Muslim countries is more like 12%, and often a lot less. Malaysia dominates the global market for sukuk, or Islamic bonds. The country issued the world’s first sovereign sukuk in 2002; in the first three quarters of 2012 it was responsible for almost three-quarters of total global issuance (see chart). Malaysia is also home to the Islamic Financial Services Board, an international standard-setting body.
These are big achievements for a relatively small country of just 30m people, of whom only about 60% are Muslim. In neighbouring Indonesia, which is home to the largest Muslim population in the world, only about 4% of the financial sector is sharia-compliant. Although the much richer Gulf states and Saudi Arabia have bigger Islamic banks, it is Malaysia, argues Iqbal Khan of Dubai’s Fajr Capital investment fund, that is the centre “for thought leadership in Islamic finance”.
How did the country carve out this niche? Malaysia’s Muslim heritage, outward-looking nature and links with financial hubs like Britain and Singapore made the place a natural candidate to bridge the worlds of religion and capitalism. The central bank, the Bank Negara Malaysia, is also supportive.
Two institutions in particular, both set up by the central bank, have contributed to Malaysia’s pre-eminence in the field. The first is the International Centre for Education in Islamic Finance (INCEIF). Established in 2005 and boasting about 2,000 students, INCEIF is the world’s leading university for the study of Islamic finance. The International Sharia Research Academy, housed within INCEIF, brings together scholars to produce an internationally acceptable rule-book for Islamic finance.
The second institution is the Islamic Banking and Finance Institute of Malaysia (IBFIM). It concentrates on vocational training, offering a variety of certificates in Islamic finance. IBFIM also acts as a consultancy to banks and firms that want to become sharia-compliant.
Zeti Akhtar Aziz, the head of the central bank, says that these bodies are the “pipeline to provide the banks with talent”. And not just in Malaysia. There are currently students from 80 countries at INCEIF; and IBFIM has taught people from Afghanistan, Nigeria, Palestine and elsewhere.
All of which gives Malaysia greater status within the ummah, the global Islamic community, important to a country that often feels on the periphery of the Muslim world. There are more tangible benefits, too. The Islamic subsidiary of Maybank, a big local lender, already accounts for about half of the group’s customers and is expanding abroad: it set up a subsidiary in Singapore 18 months ago and has also moved into Indonesia.
Ms Zeti argues that sharia-compliant banks are inherently more stable than conventional peers. Speculation is forbidden, and because charging interest is prohibited under sharia law, returns are based on profit-sharing. Perhaps. Islamic finance is hardly foolproof: Dubai’s debt crisis in 2009 showed that sukuk can help to inflate debt to unsustainable levels. But whatever its pros and cons, Malaysia will provide much of the evidence either way.
KUALA LUMPUR: Malaysia is the world’s most important Islamic-finance centre, although the richer Gulf states and Saudi Arabia have bigger Islamic banks and Indonesia the largest Muslim population, influential financial news magazine The Economist says.
Malaysia also dominates the global market for sukuk, or Islamic bonds, the magazine said in an article headlined Banking on the ummah:Malaysia leads the charge in Islamic finance, in its latest issue on Jan 5.
“Leadership in financial services is not an obvious one. Yet, in some ways the country is the world’s most important Islamic-finance centre,” said the magazine.
“Just over a fifth of the country’s banking system, by assets, is Syariah-compliant; the average for Muslim countries is more like 12%, and often a lot less,” it added.
On the Islamic bonds, the magazine said the country issued the world’s first sovereign sukuk in 2002 and in the first three quarters of 2012, it was responsible for almost three-quarter of total global issuance.
It said Malaysia was home to the Islamic Financial Services Board, an international standard-setting body.
“These are big achievements for a relatively small country of just 30 million people, of whom only about 60% are Muslims.
“In neighbouring Indonesia, which is home to the largest Muslim population in the world, only about 4% of the financial sector is Syariah-compliant.
“Although the much richer Gulf states and Saudi Arabia have bigger Islamic banks, it is Malaysia that is the centre for thought leadership in Islamic finance,” said the magazine, quoting Dubai’s Fajr Capital investment fund founder and CEO Iqbal Khan.
The magazine said Malaysia’s Muslim heritage, outward-looking nature and links with financial hubs like Britain and Singapore made the place a natural candidate to bridge the worlds of religion and capitalism. The central bank, Bank Negara Malaysia, is also supportive.
It said two institutions in particular the International Centre for Education in Islamic Finance (INCEIF) and the Islamic Banking and Finance Institute of Malaysia (IBFIM), both set up by the central bank have contributed to Malaysia’s pre-eminence in the field.
INCEIF, set up in 2005 and boasting about 2,000 students, is the world’s leading university for the study of Islamic finance.
The International Syariah Research Academy, housed within INCEIF, brings together scholars to produce an internationally acceptable rule-book for Islamic finance.
The IBFIM concentrates on vocational training, offering a variety of certificates in Islamic finance as well as acts as a consultancy to banks and firms that want to become syariah-compliant.
Bank Negara head Tan Sri Dr Zeti Akhtar Ungku Aziz was quoted by the magazine as saying that these bodies were the “pipeline to provide the banks with talent” and not just in Malaysia.
“All these give Malaysia greater status within the ummah and the global Islamic community,” she said, adding that they were important to a country that often felt on the periphery of the Muslim world.
Dr Zeti argues that Syariah-compliant banks are inherently more stable than conventional peers.
“Speculation is forbidden and, because charging interest is prohibited under syariah law, returns are based on profit-sharing,” she said.
Source : The Star
CAIRO – Turkey’s Kuveyt Turk investment fund plans to open the first Islamic bank in Germany in October, amid hopes of overcoming the bad effects of the ongoing euro crisis and get a share of the successful Islamic banking pie.
“The idea of an Islamic bank is that it adheres to Islamic investment guidelines and principles,” Zaid el-Mogaddedi, founder and director of the Institute for Islamic Banking and Finance (IFIBAF) in Frankfurt, told Deutsche Welle on Saturday, September 1.
Istanbul-based financial institute Kuveyt Turk would open the first Islamic bank of its kind in Germany next October.
The bank was introduced as many Europeans hope to sign on to a banking institute that offers only transactions backed by tangible assets rather than highly speculative financial management which caused the ongoing euro crisis.
“You have to see that it in the Islamic financial system are also mechanisms that mimic the interest rate effect – though it is not the same,” said Martin Schulte, an Islamic banking expert at the Association of Foreign Banks in Germany.
“Money is fruitless, that is to say that simply transferring money does not create economic value,” he said.
“It is a medium of exchange, which itself has no economic power.”
Conventional banking, however, is partly based on the concept that lending money is a service in itself that is worthy of compensation.
“But in the Islamic understanding it is possible to develop products that are economically useful and complement the conventional banking business from a macro perspective very well.”
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.
Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.
Investors have a right to know how their funds are being used, and the sector is overseen by dedicated supervisory boards as well as the usual national regulatory authorities.
Introduced years ago in different European countries, experts hope German new Islamic funds to be more successful than that of UK and France.
“The decisive point will be whether the Islamic banks offer an attractive product portfolio and good services,” El-Mogaddedi from the Institute for Islamic Banking and Finance, said.
Also “whether the communication is clear enough to bring Muslims and non-Muslims to the bank as an attractive alternative,” he added.
A study published in 2012 by the Stresemann Institute found that “Islamic finance” had failed in European countries because Muslim customers had lower income levels and thus little investment potential.
But El-Mogaddedi said the failure of Islamic financial products in Europe came down to bad marketing.
Staying reluctant for years to taste the booming industry, an Islam-conform investment fund was established in Germany in May 2012 by the Malaysian asset manager CIMB Principal.
The fund was approved by the German Financial Supervisory Authority (BaFin).
Germany has between 3.8 and 4.3 million Muslims, making up some 5 percent of the total 82 million population, according to government-commissioned studies.
The new Islamic finance targets Germany’s roughly 4 million Muslim residents, along non-Muslims.
Islamic banking is one of the fastest growing financial sectors in the world.
Islamic financial products got their first major boost after the 9/11 attacks on the United States.
Many Arabs withdrew their money from the US at the time, and some of those funds, according to Abdullah, ended up in Malaysia and the Gulf states.
A second boost came during the international financial crisis, when Islamic financial products actually showed profits.
The Dow Jones Islamic Market Titans Index, which tracks the 100 biggest Islam-compliant businesses in Europe, the US and Asia, has nearly doubled over the last five years.
The Shari`ah-compliant system is now being practiced in 50 countries worldwide, making it one of the fastest growing sectors in the global financial industry.
Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets amounting to $1.6 trillion (1.2 trillion euros).