Islamic finance is a boom industry, it prohibits the act of making money from money and conforms with Sharia law. It's also sometimes seen as based on a more sound set of fundamental principles than Western practices.
Presenter: Scott Alle
Senator Nick Sherry, Australia Assistant Treasurer
ALLE: Islamic financing is one of the fastest growing sub-sectors of world banking.
Last year it was estimated the global value of Islamic financial assets was more than 800 billion US dollars- and that could double by 2012.
So it's hardly surprising, Australia, which enjoys a good reputation throughout Asia for funds management, wants to tap into the potential market..
SHERRY: Some other countries have changed tax and legal regimes. One is the UK, another is Malaysia, so we do have to deal with these legal issues to hopefully draw levels and go past some of these other countries.
ALLE: Senator Nick Sherry, Australia's Assistant Treasurer, is on a four day tour of Gulf countries, to sell the credentials of Australian financial services companies. The reality is Australia is lagging far behind other Asian countries which have for some time facilitated financial products based on sharia law.
Senator Sherry has been consulting experts in Abu Dhabi, Qatar, and Bahrain, on changes needed to Australia's taxation and financial regulation laws to accommodate greater Islamic investment.
SHERRY: I'd be hopeful we can identify where the law needs to be changed bu the end of this year and hopefully have some and well we need to have legislative change by next year.
ALLE: Along with a disdain for excessive risk and outright speculation, Islamic finance doesn't charge interest, and that's one main area that needs to be addressed in any Australian legislative overhaul.
Instead Islamic banks buy an asset, a home or business, on behalf of the borrower. A fee is paid, usually in the form of rent, until the amount is fully repaid, then ownership is transferred to the borrower.
The system's supporters, and there's a growing number of banks which have sharia compliant arms, say it's better method of linking the financial system to the real economy.
Senator Sherry is confident as Australian banks and investment funds develop their expertise and understanding of Islamic finance, Indonesia, for one, will welcome their services.
SHERRY: For Australia it's not just about the attraction of investment flowing into Australia it's to assist using Australia as a base to provide products and investments into Indonesia.
ALLE: In the wash-up of the global financial crisis, created by complex debt instruments which were embraced mainly by the big European and US banks, the more conservative tenets of Islamic lending would seem prudent and wise.
But there are critics who question how Islamic transactions will hold-up when a deal goes sour. Later this month a 980 US million dollar bond or sukuk is due.
It's held by a company owned by Dubai World, the debt-riddled state investment vehicle. Just how its Islamic creditors respond to the debt restructuring situation will be very closely watched.