By Maria Bhatti and Hyder Gulam

The Islamic banking and finance (IBF) system is a small but growing sector in the finance industry which is gaining popularity due to its ability to present an alternative banking system. Globalisation and the rising number of faithful Muslims has made it advantageous for the Australian finance market to tap into the IBF industry and gain the endorsement of the Australian Government.

Most Islamic scholars claim that the prohibition of interest is the reason for the alternative framework of banking and finance.

The Assistant Federal Treasurer Nick Sherry will be travelling to Qatar, Bahrain and the UAE

This framework is reflected in three major forms of equity based profit loss sharing methods within Islam known as mudaraba (trust financing), musharaka (participating finance) and murabaha (cost plus trade financing).

The Australian Government is very keen to promote Islamic banking and finance in Australia, and thinks that Australia can play a greater role in this market segment. Later this year, the Assistant Federal Treasurer Nick Sherry will be travelling to Qatar, Bahrain and the UAE to promote Australia’s financial centre status.

The Australian government is keen to be able to provide a safe, stable and Shari’ah compliant venue

With the Middle East being an obvious major source of savings funds, sovereign wealth funds and Islamic finance, the Australian government is keen to be able to provide a safe, stable and Shari’ah compliant venue in which to invest. The Australian Government is currently considering the tax treatment of investments to ensure compliance with Shari’ah standards for investment flows into Australia.

In addition, in early 2010, the Australian Government released a seminal publication on ‘Islamic Finance’, which is available at the Austrade website. The purpose of this publication is to raise public awareness of Islamic finance in Australia and to promote opportunities for Islamic finance in Australia.