TEHRAN (IQNA) – Australia’s first Islamic bank has been allowed to hold a restricted deposit license under the Banking Act.
The Australian Prudential Regulation Authority (APRA) has officially authorized the bank to receive the license.
Islamic Bank of Australia will offer Sharia-compliant banking services to a small number of customers from 2023.
Sharia offers Muslims a wide range of rules for leading an ethical life. According to Islamic beliefs, the use of products that yield or earn interest is prohibited as it is considered exploitative, unjust and unfair. For example, being charged interest on a small loan needed to meet basic financial needs is considered unethical.
In Australia’s banking system, interest is charged everywhere, making it difficult for the 3.2% of Australians who identify as Muslim to follow their own laws.
This is where Islamic Bank Australia comes in, to provide Shariah-compliant options for those who want them.
Although Islamic banking is not a new concept. There are hundreds of depository banks around the world that are Sharia compliant. Islamic Bank Australia happens to be the number one in Australia.
How will Islamic Bank Australia products work?
Initially, Islamic Bank Australia will offer current accounts, term deposits and home loans. It will work like any other bank. The main difference is that nothing will earn interest.
Instead of the typical interest-bearing products, Islamic Bank Australia will offer a lease-to-own model for home loans and a profit pool for term deposits.
The typical Australian mortgage pays a certain amount of interest per year. This interest is the profit the financial institution makes when you borrow their money.
To follow Sharia, Islamic Bank Australia will follow a lease-to-own/co-ownership model which acts as the payment of monthly rent until you repay the equivalent of the original price of the property.
The principle is that the bank buys the property for you in its entirety and owns part of the house with you. However, to avoid paying twice the stamp duty, as you might do through other Islamic financial institutions, you will buy the property directly and your name will appear on the deed of sale immediately.
Then, instead of having mortgage payments, you will pay rent as if you had rented it. The cost will include the rental amount plus the payment for the purchase of the property from the bank of the property.
According to Islamic Bank Australia, rent is only charged on the proportion of the property that you do not own. This means that your rent should go down over time and you will eventually own the house.
As a general rule, everyday bank accounts under Sharia do not accrue interest. This particular account follows the Islamic principle of Wadiah – keeping your funds safe with a financial institution – and is endorsed by several Islamic scholars.
APRA will also regulate Islamic bank accounts: the first $250,000 deposited into such an account will be protected by Australia’s Financial Claims Scheme (FCS).
Like any other everyday account, you will have the option of having both physical and digital cards. There will be no account maintenance fees and you can withdraw and deposit money using ATMs available in Australia.
Traditional term deposits in Australia are a safe type of investment that pays you interest over a period of time.
Islamic Bank Australia term deposits do not earn interest. Instead, they follow the principles of Mudarabah and earn you money through profit shares. There will be term deposits available from 1 to 12 months, and an automatic rollover feature that puts your money back into a term deposit when it reaches its maturity date.
With regard to profit sharing, depositors’ funds are invested in ethical profit-making activities and the profits generated are shared with customers. “The initial deposit amount will be guaranteed, but the actual profit returned over time may vary,” according to the bank’s website.
Potentially, more information will be released closer to the bank’s opening date regarding profit sharing.
When will Islamic Bank Australia open?
At present, the bank is not yet open for business. With its current APRA restricted license, Islamic Bank Australia can only have a limited number of customers in 2023. The bank hopes to gain APRA approval to offer its products to the general public by 2024.
If you would like more information or have any questions, check out the Islamic Bank Australia website and contact them directly. In the meantime, stay informed of the latest banking news on our banking news and advice page.