It’s every Islamic home financing company’s dream to become an Islamic bank, but it is not necessarily the dream of every community cooperative.
However, that is just what is about to happen to Australia’s MCCA as the building blocks are put in place to see the launch of Australia’s first Islamic retail bank catering to the needs of the domestic population – both Muslim and non-Muslim alike.
Australia might not seem like the most obvious place for an Islamic retail bank – with a Muslim population of around 350,000 people – but as Dr Akhtar Kalam, chairman of the MCCA, told The Islamic Globe, it’s all about the affluence level of the 350,000: “Our customers want us to become a bank” and the performance results of the MCCA seem to bear that out. For the financial year ended 30 June the MCCA showed total income growth of 339% with profits up 317% and asset growth of 108%. According to Kalam: “MCCA’s stability, longevity and consistent financial success reflects its commitment to conservative, prudent and community focused values.”
But the change to becoming Australia’s first Islamic retail bank will not happen overnight. The reality of the situation is that the 22-year-old MCCA had simply become too large in terms of assets to remain a cooperative. So in 2010, after prompting from Australian state and federal government figures like Nick Sherry and Chris Bowen, the MCCA started the process of converting itself into an investment company – migrating its customers across from the cooperative.
AUMS for MCCA’s Income Fund will soon pass Aus$12m ($12.5m) and for the 2010/11 financial year the fund distributed a return to investors of 5.31%. The next stage of development will be to convert from a Shari’ah compliant investment company into a credit union and, if all goes well, by 2015 an Islamic retail bank.
Up until this point Australia has really only appeared on the radar screens of global Islamic investment companies because of the potential the country offers in terms of investment banking opportunities. And indeed there has been no lack of suitors from the Gulf and from Malaysia coming calling looking to invest in MCCA’s fledgling bank but the suitors were solely focused on developing Australia’s significant Islamic investment banking possibilities and were not at all interested in the retail space. According to Kalam: “We are not interested in the wholesale banking approach because we do not want to lose our community focus. We want to appeal to Australian mums and dads.”
Kalam is quite clear that the appeal of the bank has to be universal and should appeal to any customer with a taste for ethical banking practices: it is not intended to be a bank that appeals to Muslims only. This singularly retail focus caused some of the suitors from the Gulf to back off and, as Kalam puts it, “the marriage was called off while we were still in the discussion phase”.
Equally importantly, because of the prudent nature of the activities of the MCCA the returns that they achieved were modest and this did not resonate with investors from Malaysia and the Gulf looking for the kinds of double digit returns that they could expect ‘back home’ during the pre-global financial crisis days. As Kalam neatly puts it: “We have a stable country. We have a stable government.
You simply can’t expect double digit returns in that kind of environment”.
Nevertheless, the Australian Islamic finance experience has not bee a runaway success and the MCCA may find that the road ahead is not a smooth one. The Australian domestic banking scene is dominated by what is known locally as The Big Four banks – Commonwealth Bank, WestPac, National Australia Bank and ANZ although the federal government is said to be encouraging a fifth wheel on the banking vehicle in the form of credit unions. None of the Big Four has spent very much time and effort on Islamic finance although the National Australia Bank introduced Shari’ah compliant microfinance loans back in the middle of 2009 and the bank has a dedicated Islamic capital markets division, which, according to Imran Lum, associate director, “hopes to tap into the Sukuk investor base” as soon as the Australian landscape permits.
In early 2010 WestPac hoped to boost its exposure to the Islamic finance market by offering a Shari’ah compliant commodity trading facility intended to lure investors from the Gulf and Malaysia. Very little has been seen or heard of the facility since launch and the bank was unable to provide further insight into the product when questioned by The Islamic Globe. Anecdotal evidence would suggest that the Shari’ah compliant experiment was not an unqualified success.
At the other end of the scale, Australia’s largest investment house and the bank that Australians refer to as The Millionaire Factory because of its propensity for turning average bankers into mega-wealthy bankers, Macquarie Bank, in 2009 toyed with a plan of setting up an Islamic finance joint venture with Bahrain’s Gulf Finance House to target markets in the MENA region. Amidst a flurry of staff changes at the highest levels these plans appear to have been put on hold or shelved.
source: The Islamic Globe