I'd first like to thank Dato Dr Nik Norzrul Thani, Chairman of Zaid Ibrahim & Co for inviting me to launch this important new publication, Demystifying Islamic Finance: Correcting Misconceptions, Advancing Value Propositions.
Zaid Ibrahim & Co, as many of you here today will know, is a leading South East Asian law firm, headquartered in Malaysia and with offices across the region and the Middle East, and now with new offices both here in Sydney and also in Melbourne.
Zaid Ibrahim & Co is well known to me – in fact my Chief of Staff, a former corporate lawyer worked with your resident Jakarta partner, Ms Hanim Hamzah, when they were both practicing law in Tokyo in the early 2000's.
So I know your reputation and your focus and I can say that your presence in the Australian legal market is welcome.
Now, the Demystifying Islamic Finance booklet I am here to launch today is, as I said, an important one. I say "important" because I believe your booklet will go a long way towards dispelling the misconceptions which have, in some quarters, built up around Islamic finance – and I'll say more about that shortly.
First though, and on a more positive note, there is a growing awareness – both in the community and also among policy makers – of the potential of Islamic finance here in Australia.
In fact, I have just come from an Islamic Finance Boardroom Lunch hosted by the law firm Clayton Utz – so this is my second Islamic finance focused event today and later this afternoon I am doing an in-depth media interview on the subject.
So the momentum is certainly building – and so it should.
The Rudd Government is playing a key role in that progress. We are taking a keen interest in ensuring there are no impediments to the development of Islamic finance in this country, to allow market forces to operate freely.
This is in line with our commitment to foster an open and competitive financial system, and a socially inclusive environment for all Australians.
We also recognise that Islamic finance has great potential for creating jobs and wealth.
Last month, I had the honour of visiting the United Arab Emirates, Bahrain and Qatar, where I met with senior ministers, officials, regulators, central bankers and finance industry figures. Our discussions on Islamic finance, banking and insurance illustrated the vibrancy and dynamism of this area.
I also took an Australian trade delegation with me – focused heavily on Islamic finance.
And the potential benefits that Islamic finance can bring to Australia have been independently identified by several key reports.
They have been highlighted in the Austrade report launched by my Ministerial colleague the Trade Minister Simon Crean in February this year.
And of course, the benefits were clearly identified in the Johnson Report published by the Australian Financial Centre Forum, which the Government commissioned to recommend ways we can position our nation as a financial services centre in the Asia-Pacific region.
The Johnson Report identified Islamic finance as a possible means of accessing offshore pools of savings from the Middle East, to provide more diversified and competitive funding for Australia's investment needs.
The report encouraged amendments to the tax law that would ensure that Islamic finance products have parity of treatment with conventional products.
On 26 April, I announced that the Board of Taxation would undertake a comprehensive review of Australia's tax laws to ensure that, wherever possible, they do not inhibit the expansion of Islamic finance, banking and insurance products.
On 18 May, I announced the terms of reference for that review. The Board has been asked to make recommendations on Commonwealth tax laws, and findings on State and Territory tax laws, that may be impediments to Islamic finance. The Board has also been asked to review the progress other key jurisdictions in Europe and Asia have made in this area.
I am certain that a firm like Zaid Ibrahim & Co, with your extensive region wide exposure on these issues, and now with your firm footing here in Australia, will have an important role to play in this consultative process.
The guiding principle for the Board is that the tax treatment of Islamic financial products should be based, wherever possible, on their economic substance rather than their form.
I would emphasise that this review is not about creating special treatment – which no one in this area has ever asked me for. Rather, it is about creating a level playing field for the provision of Islamic financial products into the Australian market.
I have asked the Board of Taxation to provide me with their final report by June 2011.
In addition to this, my colleague the Minister for Financial Services Chris Bowen has launched a cross-government process to review the regulatory environment with a similar goal of flattening out any inhibitors to Islamic finance operations in Australia.
Unfortunately, since the Government's announcements of our work in this area, and the publication of my Middle East speeches on my Parliamentary website, I have been confronted with a number of emails and letters from unhappy, and I must say misinformed, members of our community putting forward negative views about Islamic finance. These have been small in number but they have come in and they are of concern.
Some of the issues of concern include open claims that Islamic finance is used to spread terrorism, that it is a vehicle to promote the world domination of Islam over other faiths, or that it is designed to replace conventional financing.
So we have a challenge in front of us – and that is to continue the community dialogue, to increase awareness of the truth and to highlight the facts.
And that is why I was more than happy to be here today to launch this publication.
I was particularly pleased to read that your comprehensive and balanced booklet dismantles such arguments one by one.
I think that the view that Islamic finance is "terrorism finance" is particularly egregious.
As Demystifying Islamic Finance points out, Shariah law considers the illegal use of violence as a heinous crime. And of course, Islamic financial institutions — just like conventional financial
institutions — are bound by strict laws and regulations, including anti-terrorism and anti-money laundering laws. 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 will be no exception.
In addition, I would argue, that those set on financing terrorism are just as likely to use conventional means – indeed any available means – to deliver on their wicked and misguided goals.
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.
I was also glad to see that your booklet addressed the issue, propagated on some anti-Islamic websites, that Islamic finance is designed to replace the conventional financial system and promote the world domination of Islam over other faiths.
This claim is clearly ridiculous.
As your booklet points out, the tiny minority of Muslim extremists who promote this view are not part of the mainstream and hardly speak for the rest of Muslim society.
There is no reason why an Islamic financial system cannot co-exist alongside the conventional financial system here in Australia, subject to the same laws and prudential regulation.
As I have said – this is not about special treatment but about a fair and level playing field that is not prejudiced against the provision of Shariah-compliant products.
In addition, I hope that people who read your booklet will appreciate the shared values which are the foundation of our respective financial systems – and indeed the many shared values of the world's main monotheistic faiths.
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.
Importantly, the Shariah prohibition against 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.
The Australian Government firmly believes that Islamic finance can increase the depth and sophistication of our financial markets.
Australia is a global leader in funds management. That gives rise to a strong and deep set of financial management skills and expertise, along with complementary skills in areas such as the law, that can be brought to the table in the wholesale Islamic finance sector.
We also have global leading skills in real estate and infrastructure financing – two areas with great potential in relation to wholesale Islamic finance activity as they both involve very real underlying assets, something we all know is needed in Shariah-compliant projects.
We also recognise that there are almost 400,000 Muslims in Australia who may use Islamic financial services if they are more accessible. Offering retail Islamic finance products may foster social inclusion, enabling Australian Muslims to access products that may be more consistent with their principles and beliefs.
As well, this would widen the choice of products for non-Muslims – for example, the increasing number of people in our community interested in socially responsible investments might be a natural fit with some of the fundamental tenets underlying Islamic finance.
And of course, this opportunity is not limited to domestic Australian markets. Leading Australian firms will seek out opportunities to become involved in offering Islamic finance products in the global market so they can tap alternative funding sources and invest in new areas.
The Australian Government continues to work toward enhancing access to foreign markets for all Australian businesses, and businesses which offer Islamic finance products should benefit from any successes we achieve in that sphere.
Ladies and gentlemen, in conclusion, I would again like to say that Demystifying Islamic Finance is an important publication, which I am delighted to launch.
I genuinely hope that it helps to promote a better understanding of this growing area of finance.