Is Islamic banking Australia’s ‘ethical alternative’ to the big four?

Islamic banking has been a growing feature of international finance for many years and now efforts are underway to introduce it in Australia.

A group of Muslim-Australians and industry veterans are behind efforts to establish the country’s first Islamic bank as an “ethical alternative” to conventional banking.

Islamic banks do not deal with interest, which is forbidden by the Quran, rather they use profit-sharing agreements to generate income.

The institution would add to an expanding landscape of culturally compliant financial services and bring Australia in line with a global sector worth trillions of dollars.

Proponents say non-Muslims, who are looking beyond the “big four” banks, might also find the start-up’s moral mindfulness appealing.

A head shot of Dr Dr Rashid Raashed.A head shot of Dr Dr Rashid Raashed.
Dr Rashid Raashed has worked to establish Australia’s first Islamic bank for eight years.(Supplied: IBA Group)

What is Islamic banking?

Islamic banks operate in dozens of countries around the world, inlcuding Malaysia, Indonesia, and the UK.

Their main difference to conventional banks is that they do not deal in usury, or interest, which is called riba and forbidden in the Quran.

They believe profit should come from real material and real labour, whereas usury makes money by trading money and giving nothing in return.

Instead, banks enter into profit-sharing agreements with customers.

If the borrower, say, a business, makes a profit, they share it with the bank but if there are losses, the bank does not make money.

Dealing with products like gambling, tobacco and alcohol are also forbidden.

A Quran and a prayer rug in a wooden boxA Quran and a prayer rug in a wooden box
Islamic banking does not deal with interest because it is prohibited by the Quran.(Supplied: Nasser Kat)

It is this core belief that inspired Rashid Raashed to found the group Islamic Banking Australia (IBA) eight years ago.

The law scholar from Macquarie University has been working on a range of financial products and services that are compliant with Sharia and Australian regulations.

The Australia Prudential Regulation Authority is currently considering whether to grant IBA a restricted licence to service a small customer base.

The institution would be digital — offering transaction accounts, deposits and home finance — with plans to eventually branch into small business lending.

Opening IBA for business, he said, would be a victory for more than the 600,000-plus Muslims living in Australia.

“It will bring a bit of diversity and another model for those interested in ethical banking.

“I feel that we have done something good for all Australians.”

Hejaz Financial Services CFO Muzzammil DhedhyHejaz Financial Services CFO Muzzammil Dhedhy
Muzzammil Dhedhy says Muslim-Australians have become more discerning in recent years.(Supplied: Muzzammil Dhedhy)

Muslim-Australians can already access Sharia-compliant products through a range of institutions but the market is still developing.

Muzzammil Dhedhy from Hejaz Financial Services said the opening of an Islamic bank would be a significant achievement for the community.

But Mr Dhedhy said customers were also looking for a quality product.

“That’s the new standard that Muslim-Australians are setting for service providers,” he said.

“A Muslim can already access an interest-free savings account with a conventional bank, so it comes down to whether an Islamic bank will deliver the outcomes customers have sought for so long.”

An interface display of the IBA Group's banking app.An interface display of the IBA Group's banking app.
IBA Group has applied for a restricted banking licence from APRA.(Supplied: IBA Group)

Industry veterans at the helm

It is a venture that has attracted the interest of some industry veterans both in conventional and Islamic banking.

ME Bank founding CEO Anthony Wamsteker serves as chair of IBA Group, while director Sultan Choudhury was made an Officer of the British Empire for promoting Islamic finance in Great Britain.

IBA’s chief executive Dean Gillespie was the former head of loan sales for Commonwealth Bank and has worked in senior roles at Bankwest and in retail banking overseas.

He said the chance to establish a new model of banking in Australia inspired him to get involved.

“The opportunity to build something from scratch that would really help a segment of the community was really interesting for me,” he said.

With a customer waiting list of more than 1,000 people, Mr Gillespie said the community’s appetite was real.

Ten years ago, a discussion paper on Islamic finance led to a charged political debate.

The then chair of the Board of Taxation, Dick Warburton, declared the discussions were playing on “emotion rather than fact”.

“There’s clearly some resistance in the community to anything Islamic at the moment … [but] I think you’ve got to look at every one of those things on their face value, not on some emotional feel,” he said at the time.

It was a position Mr Gillespie hoped most Australians had moved past.

“We’re trying to be an ethical bank that does good. Some people might have an opinion about that, but I’m not going to get into it,” he said.

The group aims to have a full licence by 2021.

This article was originally published on ABC News