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More lenders have expanded their offerings to include Islamic financing for Muslim clients.
Lenders are expanding their offerings to allow Australian Muslim borrowers to use loan products that fall within the parameters of Islamic-law.
Major bank National Australia Bank (NAB) has become one of the latest lenders to roll out an Islamic finance offering, revealing that it recently provided Melbourne-based construction company Bodon Homes with Islamic finance to finance the acquisition of commercial property and land.
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Through the deal, Bodon Homes will build 30 homes in Mordialloc using a finance facility that meets these Islamic law requirements.
The major bank first launched specialised financing products for Islamic businesses back in 2021.
NAB head of Islamic finance Dr Imran Lum commented: “We were proud to be the first Australian bank to offer specialised business Islamic financing and we’re thrilled to be expanding this option to enable business owners to finance their growth by purchasing commercial property and land too.
“We’re looking forward to continuing to work with the Muslim business community here in Australia — understanding their needs to help more businesses grow where they might have otherwise used friends and family to raise capital.”
Sharia law prohibits interest from being charged on loans, meaning that traditional loan products may not be an option for Muslim borrowers.
Instead, Islamic law-compliant products involve the financier buying a property and then the customer buying a share over time by paying rent.
Speaking to the Adviser, Hejaz Financial Serivces chief operating officer Muzzammil Dhedhy confirmed that the contractural, structural and funding differences between conventional loans and Islamic financing facility do not impact brokers being paid commissions.
"This is a commercial matter which is unaffected by the Sharia nature of the facility.
"At Hejaz, we pay brokers a competitive upfront and trail commission as compensation for their endeavour, and do not clawback commissions as we find that to be unethical," Mr Dhedhy stated.
In 2021, aggregator Finsure partnered with Hejaz Financial Services to allow Finsure brokers to offer Islamic home finance products and what was believed to be an “Australian first” offering through the broker channel.
Speaking on the partnership at the time, Mr Dhedhy said Islamic home finance provides an avenue for younger Australian Muslims who want to enter the housing market through financial products that align with their religious values.
“Islamic law does not allow Muslims to borrow on interest, so conventional mortgage products are not an option for many.
“By contrast, our home finance provides a home ownership pathway that is compliant with Islamic (Sharia) law in two ways — the source of capital and the structure of the agreement with the buyer.”
Furthermore, the Australian Prudential Regulation Authority (APRA) granted a restricted banking licence to Australia’s first Islamic bank — IBA Group Pty Ltd (trading as Islamic Bank Australia) — in July 2022.
Islamic Bank Australia is still currently under a restricted authorised deposit-taking institution (restricted ADI) licence, and according to the bank, has until 5 July 2024 to meet the full prudential requirements.
[RELATED: Australia’s 1st Islamic bank will distribute through brokers]
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