Islamic finance in Australia: Emerging stronger from COVID-19
Hakan Ozyon | 13 April 2021
Australia’s management of the COVID-19 pandemic has resulted in its economy performing better and recovering faster than many other established global economies. Its economic output declined 2.5% in 2020, which was smaller than the 10% drop in the UK, the 5% drop in Canada and the drop of more than 3% in the US. HAKAN OZYON explores.
The Australian government and the reserve bank of Australia took various initiatives to protect the local economy from the adverse impacts of COVID-19. These included and unprecedented quantitative easing program, three interest rate reductions over the course of 2020 to a record low of 0.1% and a government-subsidized wage scheme to keep people in jobs, while home loan borrowers could defer loan repayments to reduce mortgage stress and defaults, while boosting credit activities.
These initiatives have had a positive impact across the broader Australian economy, with some sectors being an exceptions such as hospitality and tourism, while the Islamic financial services industry has also been supported by government initiatives.
In terms of the local Islamic financial services industry, the more established Islamic financial services providers have reported exponential growth in client numbers, investment volumes and home loan enquiries. This is despite government regulations allowing access to pension funds to assist in the recovery of the pandemic.
In the investment space, Islamic investments have performed better than their conventional equivalents due to the diversified nature of the underlying portfolio, with limited exposure to leveraged investments and no exposure to speculative instruments such as derivatives. This has allowed Islamic investors to enjoy healthy gains in their investment portfolios for the 2021 financial year thus far and the signs look positive for further growth in the remainder of the financial year.
As for the Islamic home finance market, it has grown exponentially in the 2021 financial year. Muslim borrowers have proven to be very resilient, reporting only one case of financial hardship during the peak of COVID-19 in 2020. Moreover, lower finance rates have created what many are calling a ‘once in generation’ property boom with many Muslims engaging with Islamic financiers to enter the property market for the first time, while other more seasoned investors are growing their portfolios. Muslim enquiries for Islamic financing increased over 200% over the second half of 2020, with the momentum continuing into 2021.
Considering this growth in demand for Islamic home finance products, Hejaz Group launched a pioneering partnership with one of Australia’s mortgage aggregators, Finsure. This will allow, for the first time in Australia, Islamic home finance products to be offered to clients through a broker channel.
Islamic home finance primarily provides an avenue for younger Australian Muslims seeking to enter the housing market through financial products that align with their religious values. Increasingly, we are seeing Muslim Australians – particularly younger generations – seeking financial products and models that align with their faith, while still helping them reach their financial goals, be it homeownership or wealth creation.
Considering the best interest duty obligations that came into effect on the 1st January 2021, it is more important than ever to clearly demonstrate why a loan product is recommended is in face in a client’s best interests.
Through the partnership between Hejaz Group and Finsure, when a client of Islamic faith approaches a broker seeking an Islamic loan, brokers will be able to look beyond conventional loan products and offer a product that aligns with not only that client’s best interests, but their personal values.
As a further confirmation of the robustness and health of the Australian economy post-COVID-19, the Australian dollar (AUD) rose 10% against the greenback during 2020 to hit a two-year high of 77 US cents on the 31st December amid a broad weakening of the US dollar, while making smaller gains against the pound (up 4.8%) and the Japanese yen (3.1%).
2021 has seen the further strengthening of the AUD, on the back of higher commodity prices, further strengthening the rebound in the resource-rich Australian economy. Hence, the IMF has a forecast growth of 4.5% for 2021.
Hakan Ozyon is CEO of Hejaz Group of Companies. He can be contacted at [email protected]