Legal and regulatory issues of Islamic finance in Australia

Abstract

PurposeThe purpose of this paper is to contribute to the existing body of work in the area of Islamic finance by examining the regulation of Islamic finance in Australia.Design/methodology/approachThe method employed in this paper is a mixture of direct observation from legal and regulatory perspectives and authors' personal experience, curiosity, and association with this industry.FindingsIn Australia, where Muslims are minorities and full‐fledged Islamic banks are absent, it is expected that regulatory authorities would ensure there is a level playing field, so that neither Islamic financial services providers (IFSPs) nor conventional financial institutions are disadvantaged. They have also been expected to approve and monitor Islamic financial products, including those offered by Islamic managed funds.Research limitations/implicationsThe study is undertaken through the Shari'ah, where law, finance, economics, and business form a single dimension only, even though a very significant one. No attempt is made to evaluate the economic efficiency and profitability or otherwise, of IFSPs in Australia. Also, the approach for the study is not supplemented by any empirical work (e.g. by quantitative analysis of data or by survey or other qualitative methodologies).Practical implicationsThe paper practically examines: the impact of banking and financial services regulation on Islamic banking and financing practice in Australia; and what further legislative measures and changes are needed to accommodate Islamic financing practice into Australian society to make it a truly viable alternative system of financing for Muslims in Australia.Originality/valueExamination of the issues of the study is originally undertaken through one of the authors' personal expertise and working experience with some IFSPs in Australia, aiming at developing the relevant regulations by the Australian regulatory regime to make Islamic finance a viable alternative system of financing for Muslims in Australia.