Muslim bank loans in Australia: Halal or haram?
Apparently there’s a huge untapped market where muslims in Australia aren’t taking out traditional loans because charging interest conflicts with sharia law. Despite traditional loan methods involving interest muslims are obviously still taking out loans to buy housing and cars, you only need to look at the western suburbs of Sydney and Melbourne to confirm this.
Presumably muslims are getting finance from independent third party operators in what must be a pretty controlled niche industry. Think about it, you offer loans to muslims who can’t go anywhere else but still need to finance essentials like a car or house. You don’t need to be muslim yourself to offer the loans, you just need to make sure the loan is halal by complying with the no-interest rule.
Where else are they going to go?
It has already been noted that the Islamic finance industry is booming in Asia and Latrobe University already offer an Islamic Banking and Finance degree, pre-empting Islamic finance as a future growth industry in Australia.
If we as a country want to exploit tap into this ludicrous market (religious people tend to have limited options when it comes loans), then logically the first step would be to test home grown products on Australian muslims.
Enter the National Bank of Australia.
This morning the National Bank of Australia (NAB) has announced plans to bring muslim-friendly loans into into mainstream finance by offering national muslim-friendly loans. From discrimination to public perception to actually turning over a profit there’s a seemingly large minefield in a national company announcing such an initiative.
On the surface though, the NAB seem to be doing it right.
The whole premise behind a muslim-friendly loan is that no interest is allowed to be charged on repayments. To get around this the bank simply purchase what it is you were after and then sell it back to you with a profit margin.
ie. I want a $1000 bicycle and go approach the bank. After some prayers and the sacrifice of a kitten the bank approves my loan and goes out and buys the bicycle for me. They then sell it back to me at say $1200. I still make repayments but the loan counts as being muslim approved because I’m not paying interest on the loan itself.
In the case of home loans, companies seem to get around the interest rates by charging ‘rent’ with the renter eventually acquiring a 100% financial stake in the property.
I know, talk about your religious technicalities.
As the Daily Telegraph points out, these type of loans have “the advantage of making the loan immune from future interest rate rises.” What isn’t disclosed though is the percentage increase on the cost of the item.
What could really make these loans appealing is if the increase in the selling price the banks put on the item they are reselling back to you is less then the variable interest rate on loans, or might be less in the near future.
For example say a bank offers you a $1000 loan at 5% variable interest and the interest rate has jumped twice in the last 6 months, if the muslim loan profit increase was at 5% or even less you could easily come out on top and as a bonus protect yourself from unstable interest rate rises.
Currently we’re starting to see this already happen in our financial sector with the Commonwealth bank deciding to “selfishly” start bumping up interest rates because you know, the recession is over. The bank were so slow to drop the rates but even at the slightest whiff of bounce back up they go.
In these cases a muslim style loan makes sense for the consumer, again providing the profit margin percentage is appealing. Given no facts and figures have been released other then the first round of loans will be $1000 or so capped to fifteen million of initial investment in the scheme I’m assuming the NAB is poised to take advantage and screw consumers.
If the model is sustainable on a small scale trial I guess it won’t be long before we see national fully fledged Australian bank backed muslim friendly mortgages.
Realistically all the NAB has to do is charge slightly less then the private operators who offer muslim loans do and they’ll be guaranteed a market share of the muslim loan industry. Given that anything more financially attractive then the standard ‘we charge you interest’ model would make the bulk of their currently loan models redundant (why pay more when you don’t have to?), there is no incentive to make muslim loans more appealing.
What is most likely going to happen is that these loans are heavily marketed to predominantly muslim areas but are offered to all members of the community. Naturally if you’re not bound by silly religious laws you’re not going to sign up to a loan that will cost you more then a normal interest loan, so that leaves only the ‘we have no other choice’ muslims left to be screwed over.
This way the banks appear to be offering non-discriminatory loans, are able to legally screw over a certain demographic who have no other choice due to silly religious laws and the ludicrous Sharia Advisory Board is kept afloat providing clerics to bless wads of loan money (or hard drives given finance is mostly all electronic these days).
Sounds like it’s win-win all round, well… except for muslim wallets.