Good morning, and thank you for inviting me to address the first Amanie Australia Islamic Finance Forum.
Islamic finance is a rapidly expanding market, with annual global growth estimated at around 15 to 20 per cent. Some projections suggest that the Islamic finance market will be worth $US2 trillion within the next three to four years.
Islamic finance is playing an increasingly significant role in world markets. Over the last decade, Islamic finance has developed to become a form of financial intermediation that serves both Muslim and non Muslim consumers.
Similarly, Australia is a growing market for Islamic finance.
Australians take great pride in the rich diversity of our cultural heritage. We are proud of the fact that our nation protects freedom of religion under our highest law. Because of this - provided that they comply with other laws - banks and other financial institutions are free to implement measures designed to appeal to specific market segments.
Of course, Islamic financial institutions - just like conventional financial institutions - are bound by our strict laws and regulations.
As I'm sure you are all aware, Australian financial institutions are among the best-regulated in the world, and Islamic financial institutions operating in Australia are no exception.
The Australian Government works to foster competitive and efficient markets that promote consumer wellbeing, a secure financial system, and sound corporate practices.
This work supports a market system based on integrity, transparency and clarity - the same principles which are set out in the Koran and the Sunnah, and which form the basis of Islamic finance.
It's also worth noting that the Shariah prohibition of betting or gambling means that Islamic banks can use fewer risk-hedging techniques and instruments 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.
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 to create jobs and boost sustainable growth.
This is why the Australian Government regards the introduction of Islamic finance products into the domestic market as a way to open our financial services sector - and our economy - to new opportunities for growth.
Because Australia's current regulatory arrangements already allow Shariah-compliant funds to be established here, the potential for new opportunities already exists at the institutional level.
And, we have already seensome successful ventures in this area.
There are over 470,000 Muslims in Australia who may use Islamic financial services if they are more accessible.
As well as appealing to Muslim Australians, Islamic financial transactions can be undertaken between Muslim and non-Muslim parties.
The underlying ethical and environmental character of Islamic financial products make them attractive to non-Muslim investors.
The introduction of Islamic finance products into the Australian market is not a replacement for other forms of finance, but rather a door to new opportunities for our financial services sector and for our economy more broadly.
While we recognise that Australia has a well-resourced, well regulated and innovative financial sector, there is scope to implement policies that will increase international trade in financial services.
The Australian Government is committed to an open and competitive financial system and a socially inclusive environment for all Australians
As well as a large and growing Muslim population, Australia has several advantages that make us well-placed to facilitate further demand for Islamic finance services.
Our geographic position places us in close proximity to large Muslim populations.
Over twenty years of the Superannuation Guarantee means our financial institutions have extensive funds management expertise.
Additionally , we have a well-resourced, well-regulated and innovative financial sector.
Together, these factors put us in good stead to become an important regional player in the development of this market.
To further develop Islamic finance in Australia, we are committed to reviewing some of the systems we have in place, and working to ensure that there are no barriers for new entrants to the market.
To successfully offer Islamic finance products in Australia, it is important that we can ensure that we have:
- a level and non-preferential tax, legal and regulatory playing field for Islamic and non Islamic finance;
- government engagement with the private sector;
- the ability to identify impediments to, and opportunities for growth;
- a focus on deepening Islamic finance skills - education, training and attainment of relevant qualifications; and
- growth in Islamic finance professional services providers.
We are already making progress on implementing the recommendations of the 2010 Johnson Report, which recommended policy options to better position Australia as a financial centre. The Report made two recommendations relating to Islamic finance.
The first recommendation related to taxation.
The report recommended that the Board of Taxation examine whether changes to Commonwealth tax laws are needed to ensure parity between Islamic and non Islamic financial products.
In April 2010, the Government announced that the Board of Taxation (the Board) would undertake a comprehensive review of Australia's tax laws to ensure that, wherever possible, they do not inhibit the provision of Islamic finance, banking and insurance products.
The terms of reference for the review required the Board to make recommendations and findings to ensure that, wherever possible, Islamic financial products have parity of tax treatment with conventional products based on their economic substance.
In essence, this is about a 'fair and level playing field' and not about special treatment.
The Board has submitted its final report on the review to the Government, which is considering the issues raised in the report.
The Johnson Report was further relevant to Islamic finance by recommending the removal of any regulatory barriers to the development of Islamic financial products in Australia.
To date, no substantive regulatory barriers at the Commonwealth level have been identified.
Leading Australian firms will seek out opportunities to be involved in offering Islamic finance products in the global market. They will do so in order to tap alternative funding sources and invest in new areas.
While Islamic finance is still in its early stages here in Australia, it offers much potential - to this nation, and to other economies in the region.
This is why the Australian Government is committed to further developing Islamic finance in Australia.
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.
I trust that you will continue to work with us as we continue to develop this exciting sector.
Thank you.