Westpac Banking Corp (ASX: WBC) has launched what it claims to be Australia’s first Islamic financing tool for institutions, designed to facilitate commodities trade for Middle Eastern and Malaysian investors. The bank’s institutional bankers have developed a Special Interbank Placement for Islamic institutions, allowing Islamic investors to buy iron ore and other commodities forward using Westpac's strong balance sheet without the counterparty risks of a doing a direct deal with a supplier. Ethical Investor will be publishing a special edition on Islamic finance in April. For further details contact the editor.
We believe it is the first in Australia," Westpac's head of financial institutions and trade, Emmanuel Alfieris, told Reuters.
Under Westpac's new Islamic product, the bank buys commodities on behalf of investors, holds them on its books for a short time and then, once they are sold, splits the profit with the investor. The time period and profit share are pre-agreed.
Sharia law dictates that transactions involve physical assets, so commodities are often the asset of choice because they are more liquid than other real assets, such as property.
The Australian government is backing a larger role in Islamic finance for Australia.
"Islamic financing is a crucial plank in the government's strategy to make Australia a financial hub in the Asia Pacific," Simon Crean, trade minister, said.
A recent government study recommends the removal of regulatory barriers and some tax reforms.
At the launch of the government's booklet, Islamic Finance, Crean said Australia is well positioned to cater for the Islamic financing market, which has grown at 10 per cent per annum for a decade.
"Islamic financing is a booming sector and Australia should be part of the action," Crean said.
"The continued growth in major Asian economies will create a need for resources-related services and infrastructure, which are ideal assets for forms of Islamic financing," said Crean.
The Johnson Review (reported here) found some 365,000 Muslims live in Australia and would use Islamic financial services if they were more accessible.