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Shariah finance future

Volume 6 Number 2 February 8 - March 8 2010

Islamic finance may not have widespread recognition just yet, but it may just hold one of the keys to Australia’s global financial recovery, according to recent scholarship winner Maria Bhatti, as David Scott found.

The Global Financial Crisis has prompted a lot of soul-searching and questioning of the future of the global financial system. So it’s refreshing to hear Melbourne Law School student Maria Bhatti discuss how Islamic – or Shariah – finance could be a viable alternative.

“From an international economic perspective, the global financial crisis has caused many to start exploring alternative economic models and systems. It is interesting to note that while share markets in London and New York faced significant losses, the Dow Jones Islamic financial index rose 4.75 per cent in the recent September quarter.

“And from a domestic perspective, governments are starting to move away from a dominant ideological mindset to a belief that the needs of people from other religious faiths and culture have to be accommodated and properly addressed.

“There is a growing number of Muslims in Australia and the majority scholarly opinion in Islam is that any form of interest (known as riba) is unlawful. It is for this reason that alternative methods of financing should be available for Muslims, and worthy of further research.”

It’s an area of specific interest to Maria, who will examine Islamic financial transactions as part of the thesis component to her Masters of Laws, specialising in commercial law. Having completed her degree with Honours in Law and a major in Islamic Studies in Arts, she received a welcome boost to her studies just before Christmas, receiving the National Australia Bank Sheikh Fehmi El-Imam Scholarship, a once off $25 000 payment towards further study into Shariah-compliant financial products and services with the option of employment at the NAB on completion.

“It was certainly a great achievement! A major component of my LLM focuses on Islamic banking and commercial law and I have also recently published an article on Islamic corporate governance.

“I am interested in exploring the legal issues surrounding the industry of Islamic banking and finance. I find this particularly significant in light of Nick Sherry’s recent announcement about the commitment of the Federal Government in accommodating Islamic products and services in Australia. He also noted that it is important to ensure a flexible regulatory and legal framework and to address the legal issues that may be hindering the development of Islamic finance in Australia.”

There is certainly growing support from law firms and the banking industry for the growth of Islamic finance here. The National Australia Bank has reached an agreement to offer Islamic financial products (benevolent loans free of interest), and at the same time funding scholarships like Maria’s, and law firm Macpherson+Kelley has recently agreed to establish the country’s first Islamic finance fund in conjunction with the Muslim Community Co-operative of Australia (MCCA).

If in need of inspiration, Australia needs only to look towards the UK as a leader in Western countries expanding the development of Islamic finance. It was the first to establish its own Islamic bank (the Islamic Bank of Britain, in 2004) with six branches across the UK, as well as giving provisions for the Saudi British Bank and HSBC to offer Sharia-compliant finance products.

 “The current discussion in Australia is whether we should follow the UK’s lead on this and also set up an Islamic Bank or whether it is enough that NAB has agreed to offer small benevolent loans free of interest. I tend to agree with former Liberal Party leader and Global DC chairman John Hewson, who has noted that if the legal issues surrounding the introduction of Islamic finance products were addressed, then one could conceive the establishment of at least one Islamic bank in Australia within five years and allow for Australia to emerge as the Islamic financial hub in the Asia Pacific.”

And don’t be surprised if in five years Maria is leading the charge. “While I’m interested in becoming a registered lawyer in Australia after completing my LLM, in the next five years I am really keen on doing my PHD and writing a book (or many books!) on this issue.”

“I love writing and researching, it helps me increase my knowledge and then pass that knowledge on to others. My intention is always to share what I learn and in turn, inspire others!”