Islamic finance is a 'rapidly expanding market' and introducing Islamic finance products could open the financial services sector to new growth, the Australian federal government has said.
The introduction of Islamic finance products into the domestic market presents an opportunity for growth in the financial services sector, according to Bernie Ripoll, parliamentary secretary to the treasurer and parliamentary secretary for small business.
"We see Islamic finance as a way of opening our capital and credit markets, enhancing competition and innovation, fostering social inclusion, and promoting greater engagement and integration in the Asia Pacific," Mr Ripoll told the Amanie Australia Islamic Finance Forum yesterday.
Islamic finance is a "rapidly expanding market", according to Mr Ripoll, with annual global growth estimated at approximately 15 to 20 per cent. Some projections indicate the Islamic finance market will be worth US$2 trillion within the next three to four years.
Current regulatory arrangements allow Shariah-compliant funds to be established in Australia, according to Mr Ripoll, meaning potential for "new opportunities" exists at the institutional level.
"We have already seen some successful ventures in this area. There are over 470,000 Muslims in Australia who may use Islamic financial services if they are more accessible," he said.
In addition, Shariah prohibition of betting or gambling means Islamic banks can use fewer "risk-hedging techniques" than conventional banks.
"As the world learnt to its cost, the excessive use of risk-hedging instruments led to the growth of toxic assets during the global financial crisis," Mr Ripoll said.
"Importantly, the Shariah prohibition of highly speculative activities not only helps to protect the economy against abuses and distortions, but also forges a closer link between financial activity and the real economy."
This maximises the efficient allocation of capital and resources, helping create jobs and boost sustainable growth, Mr Ripoll said.
Also, Islamic financial transactions can be undertaken between Muslim and non-Muslim parties, according to Mr Ripoll, who said Islamic finance has become a form of "financial intermediation" serving both Muslim and non-Muslim consumers.
