Podcast transcript

Podcast transcript

Perspectives on Islamic finance

 Assoc Professor Ishaq Bhatti

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Transcript

Warwick Grant

Hi. My name’s Warwick Grant. I'm a parasitologist working in the genetics department at La Trobe University and you’re listening to a La Trobe University podcast.

Matt Smith

Hello, I'm Matt Smith and this week on the La Trobe University podcast, we’ll get three different perspectives on Islamic banking. Ishaq Bhatti, who’s in charge of the program here at La Trobe, came into my office with two guests. You’ll hear from them later on but firstly Ishaq himself will just give a bit of background on what we’re doing here at La Trobe with Islamic banking.

Ishaq Bhatti

I am Ishaq Bhatti, Associate Professor and the Director of Islamic banking and finance program at La Trobe University. We are the first ever to launch Master of Islamic Banking and Finance in 2009. This is one of the best structured program which will build bridges between the conventional finance and the Sharia finance. In this, our fourth year of running Master of Islamic Banking and Finance, the interesting thing is our job opportunities are a hundred per cent of the students who have graduated till today and they are working at the moment in the industry. Part of the Master of Islamic Banking and Finance is, core courses, Islamic capital market. Today in the study here with me is our industry speaker, Simon from First Guardians Islamic Super, who has spoken to my students and the structure of this course is as follows, that we bring each fortnightly, one of the industry speakers to come and present their product which they are working with in Australia.

These products are ¬of course being in our knowledge since we started Master of Islamic Banking and Finance, we are working very closely with the industry. Simon is the last speaker of the course and so we thought we should bring him in the studio.

With me today is Maiyadah, she is a student of Master of Islamic Banking and Finance. She has been living all her life in Singapore. She will be talking today about one of the required projects which is 20% of the project she is doing as part of the assessment and 5% of the assessment is presentation. She will do the presentation today in the studio. You feel free to ask any questions regarding her project. I hope she can justify her knowledge of Islamic capital market.

Matt Smith

Okay, so that’s Ishaq. Now we’ll hear from the student, Maiyadah and just to give you a bit of context, she’s sitting right next to her teacher Ishaq at the time, so no pressure for performance there.

Maiyadah Al Magribiyah

I'm Maiyadah Al Magribiyah and I'm a Finance student in La Trobe University, doing Masters in Islamic Banking and Finance.

Matt Smith

And where are you from?

Maiyadah Al Magribiyah

I'm originally from Indonesia but I've been living in Singapore for more than twenty years. I'm practically Singaporean.

Matt Smith

Sure. Okay. So tell us about your project then.

Maiyadah Al Magribiyah

The project that I'm doing this year, Sabana REIT or Sabana real estate investment trust which is a Singapore company. They’re only and also investing in real estate properties, though we are asked to do whether the company is Sharia compliant or otherwise.

Matt Smith

Okay, so what exactly would you be looking at then? Sharia compliance in that company?

Maiyadah Al Magribiyah

Yes, so I'm looking at how stringent are they in ensuring that the company is Sharia compliant, and also I'm looking at the qualitative and quantitative Sharia screening processes that they have taken to ensure that the business in the premises and also the individual properties that they invest in, are Sharia compliant.

Matt Smith

What do you expect to find if they are Sharia compliant?

Maiyadah Al Magribiyah

Singapore is not an Islamic country so I want to see how they actually thrive in operating in that kind of environment and how the government actually supports the company.

Matt Smith

I did want to know how the use of Sharia law compares over there to how it is in Australia. Have you noticed anything like that?

Ishaq Bhatti

In Victoria, Islamic finance is allowed to be practised. Victoria is the hub of Islamic finance in Australia. They sorted out a lot of succession issues but the Taxation Board of Australia's report which was in June 2010, which recommended that Islamic finance should be given equal opportunity or a level playing field with the conventional finance. The government hasn’t done anything and they are missing out a hell of investment in Australia.

Maiyadah Al Magribiyah

One of the government initiatives is to support the Islamic finance. The government issued a double taxation duties to support the Islamic capital market and Singapore is actually progressing to where it’s becoming an Islamic finance hub.

Matt Smith

So there’s a lot more support for it there than there is in Australia then?

Maiyadah Al Magribiyah

Yes.

Matt Smith

And now guest three, Simon Selimaj, who works in Islamic superannuation and was here at La Trobe University to give a guest lecture.

Simon Selimaj

I'm Simon Selimaj. I'm the principal behind the First Guardian Super.

Matt Smith

What is Islamic super? Tell me about it.

Simon Selimaj

Well, Islamic super is based in essence on a negative screening process and the negative screening basically is about what’s prohibited to start with. So you start off on the basis of no alcohol, no adult entertainment, gambling, tobacco, military equipment, and the overriding issue here is, what elements of Riba or fixed interest is involved in a business. And most businesses out htere have a high level of fixed interest involvement, so a lot of screening has to go through to make sure that there’s no involvement in that sort of companies.

Matt Smith

Okay, so when you have super, the super fund goes and invests your money and you get interest on it, so it’s really just taking a closer look at where the money’s being invested beforehand. Is that what it is?

Simon Selimaj

Well, no, there’s no fixed interest in our super product. It starts off with an asset allocation model and the allocation starts off in the basis of number one, there’s a cash component. We have a minimum level of cash which is non-interest bearing. Then we have a certain physical gold component, which provides us with liquidity, for the fund. Then we invest in equities, both domestically and globally, where we make sure that they are Sharia compliant, so the negative screening starts there as well. As to the fixed interest, we had a high income alternative, which is basically global infrastructure where we look for equity players around the world that are good quality assets, provide sustained cash flow, and is a good chance of a high dividend reward from it. And that’s our sort of substitute for fixed interest – high dividend yields.

Matt Smith

Okay. So how is investing your money that way different to say, just doing it ethically?

Simon Selimaj

Well, it is ethically, and the only difference between a typical ethical fund and a Islamic fund, is the element of fixed interest or Riba. That’s the real difference and when you overlay that, you’re basically excluding yourself from approximately a third of equity exposure in the market. In Australia for example, the banks’ composition of the index, the all ords index, is around 33 to 35%. So we can’t invest in those sort of stocks. So we look for alternatives elsewhere.

Matt Smith

Okay, so if you’ve got that option but most super, as it is, is quite ethical. What is the benefit of people opting for Islamic super?

Simon Selimaj

The real difference is that we have to take it a step back. And the issue starts off with, how did this thing about fixed interest or Riba come about? From the Muslim perspective the prophet Mohammed, he understood the concept of Riba, how the money-lender was not in the same position as the person providing the labour, or the land issue, or the capital in other regards, tying it all together. There was a conflict. So he wanted the two to be embedded together. So the issue was, avoid all elements of Riba, because they could end up ruining your family. So the person that provides the loan, the person that draws up the contract, and the person that’s seeking the loan, should not get involved in that sort of element. And the Western banking system, up until 1820, adhered to those sort of principles. But from 1820 onwards, factional banking got more and more popular, and with the system came the situation where the person with the capital and the person with the idea or the labour, were not in the same boat. And that’s the real difference of Islamic investment principles. It’s the element of Riba, fixed interest.

Matt Smith

So do you think that conventional Australian super funds have a lot to learn from the Islamic super ideals?

Simon Selimaj

I think it relates to your social conscious element. We all have our own attributes in terms of virtues, and I think that the way the Western banking system has operated has been unscrupulous, the Sub Prime issue is a prime testament to that, and it’s happening again in the United States for example. Instead of having Fannie Mae and Freddie Mac, over a third of new mortgage loans are provided by the FHA, the Federal Housing Association. It’s gearing up to the same situation that happened from 2001 to 2008, so we’re building up the same sort of pitfall, where the system could collapse again.

Matt Smith

So, as an impartial observer and just pretend that Ishaq isn’t here, what do you think of the Masters course that is being taught here? Do you think that the students who are coming out of this Masters are the sort of students that you’d like to employ?

Simon Selimaj

I saw students today with a great amount of passion. You could feel it. They were beaming, they were interested, they wanted to know how to get into the industry. The key word for me was passion. In the last three or four years I've had close to a handful of students come from La Trobe seeking internships and I've taken them on, and I can sincerely say that these people were wonderful in terms of their attention to detail, they had their heart in the right place in terms of what is a social/ethical investment process. They wanted to learn so much about it, and they wanted to share that knowledge and spread the word about Sharia compliance or Islamic principles to their peers and to other members of the community.

Matt Smith

So it’s been a good outcome so far?

Simon Selimaj

I think it’s wonderful and I think it’s behoven upon all of us to share this wonderful attribute that the prophet Mohammed wanted to instil in all of us, and the students have embraced it with great zeal.

Matt Smith

That’s Simon Selimaj and if you’d like to hear his full lecture about Islamic banking, then you can find it in our Islamic Banking Collection on iTunes U or it’s also on our blog. That’s at podcast.blogs.latrobe.edu.au. My thanks also to Maiyadah and to Ishaq for stopping by and talking to me. That was the La Trobe University podcast. I'm Matt Smith. You’ve been fantastic and thanks for listening.

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