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Oct 18 2012

Australia brings its own connections to the Islamic finance market

By Nigel Denison of BLME Australia brings its own connections to the Islamic finance market
From humble beginnings in the 1970s, Islamic finance assets total nearly USD 1 trillion globally. Despite its exponential growth in recent years, expanding at a compound annual growth rate of 20% over the past three years, it remains a subset of the global financial industry. It will be interesting to see what impact Australia has on the market with Crescent Wealth partnering with BLME to provide Australian and South East Asian investors with access to the sukuk market.

The growth and performance of the sukuk market has been one of the biggest success stories in the global financial markets in recent years. 2012 will be a record year for issuance with Zawya's view that total issuance could top USD 126 billion. The success of the industry is not only based on the amount of issuance but the new names that have entered the market, which include conventional issuers such as HSBC ME, Majid Al Futtaim, South Africa and most recently the Republic of Turkey.

Why Australia? There are almost half a million Muslims in Australia who will form the initial target client base. However, interest will not be limited to the Muslim community in the same way that Islamic finance is attractive to all investors in the UK.

Australia has a well established responsible investment market with growth of 8% last year, bringing the sector to almost AUD 20 billion, according to a report by the Responsible Investment Association Australasia. The similarities between Islamic and ethical finance have been well documented and we expect to see the Crescent offering attracting ethical investors. The performance of Islamic products will also attract investors and with the sukuk market outperforming conventional bonds the consistent positive returns look set to continue.

An important growth driver is Australia's proximity to and growing relationships with Asia. For example, the demand for commodities from developing counties such as China and India continues to increase. Eight of Australia's top 10 trading partners are in the Asia Pacific region.

Malaysia has a free trade deal with Australia which provides a strong link to a country that has an established Islamic finance market. According to Standard Chartered, Malaysia issued 62% of sukuk from 2007 to 2011. Indonesia has one of the largest Muslim populations in the world and currently only 5% of the total banking assets are Shariah-compliant according to CityUK's 2011 Islamic Finance Report.

The UK Financial Services Authority authorized the first Islamic Bank in 2002 and nine years later The Banker magazine estimates that the UK is the leading provider of Islamic finance in the Western world and ninth globally. This growth has occurred in a relatively short space of time due to a supportive regulatory framework and innovative financial organizations that are dedicated to providing competitive Islamic products.

There is no reason why Australia will not be in a similar position in the future - which can only be a good thing for the Islamic finance industry.

Nigel Denison is head of asset management and treasury at Bank of London and The Middle East.

© Zawya 2012


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