Hejaz Financial Services, a Melbourne-based non-bank financial institution offering Shariah-compliant services and products, is in the process of obtaining a banking licence.
The firm has started initial discussions with the Australian Prudential Regulation Authority, according to Muzzammil Dhedhy, Hejaz’s chief operating officer. The firm has also engaged with the Australian Securities and Investments Commission, said Dhedhy.
It’s still very early days.
Dhedhy told Salaam Gateway that in order to become an authorised deposit-taking institution, a test period takes place after 12-18 months submission and that it will likely take around two years to get the full licence. Specifically, there is a restricted licence for the first two years that will convert to a full licence.
“The process involved with the Australian Prudential Regulation Authority requires various submissions and discussions. We have made initial submissions to the APRA and will be engaging in further dialogue with them,” said Dhedhy.
The APRA and ASIC did not respond to Salaam Gateway’s request for verification and comment.
Established in 2013, Hejaz started with the basics like accounting, wills and investment services but has since expanded into areas like home and construction financing. It serves both the B2B and B2C segments.
“When we started, we initially focused on wealth management for the Muslim Australian community,” said Dhedhy. “We wanted to offer our clients an alternative to conventional financial instruments.”
Hejaz has its own internal Shariah team and follows AAOIFI standards as part of its Shariah governance. Well-known scholar Mufti Ismail Ebrahim Desai conducts the firm’s annual external Shariah audit.
The firm operates two funds – the Global Ethical Fund and Ethical Income Fund, that collectively hold assets under management of around 180 million Australian dollars ($140 million).
It also offers Islamic pensions accounts, home financing, and wealth management.
“From an operations perspective as well as to attract investment capital, we are seeking a banking licence so that we can accept deposits as well as issue other products like credit cards,” explained Dhedhy.
Maya Marissa Malek, CEO of Dubai-based global firm Amanie Advisors, said Hejaz’s ambition to become an Islamic bank is good news.
“It is positive that there are more Shariah-compliant offerings in Australia and will benefit the consumers,” she said. “It also highlights the demand for Islamic financial services.”
OTHER PLAYERS IN THE RACE
There are currently no full-fledged Islamic banks in Australia but this is set to change in the near future.
If and when it gets a banking licence, Hejaz will go up against the Islamic Bank Australia (IBA) that hopes to receive its licence this year and is on course to become the country’s first Shariah-compliant retail bank.
Others in the Islamic finance sector are the well-established non-bank financial institutions Crescent Wealth and MCCA, and Amanah and Islamic Co-Operate Finance Australia Limited also offer Shariah-compliant products and services.
In addition, conventional institutions, like National Bank Australia, offer Shariah-compliant services.
Dhedhy believes Hejaz addresses a gap in the market by offering a more consolidated product line.
“Different providers are serving different segments of the market and serve a specific need like home financing,” he said. “We aim to offer a single package of products; we tend to offer ancillary services free of charge.”
Once Hejaz becomes an authorised deposit-taking institution, it will primarily be based online, similar to the Islamic Bank Australia.
“[In] our initial approach, we will be online-based as a large proportion of our customers are accustomed to fintech and online banking,” said Dhedhy. “However, longer term, we may also open branches in capital cities.”
Amanie’s Malek said that in order for non-bank financial institutions to become successful full-fledged Islamic banks, the cost of funding and economies of scale will be important. “In addition, you need to have solid market research and a solid strategy,” she noted.
The key to success for Hejaz, she added, will be to offer competitive rates against its Islamic and conventional peers as well as promote the products as ethical financing to non-Muslims, two points that Dhedhy picks up on.
“We aim to be competitively priced not just against Islamic but also conventional peers,” he said.
95% of Hejaz’s 6,000 clients are Muslims, according to Dhedhy, and their customers are seeking an ethical alternative to what’s currently in the market.
MUSLIM FINANCIAL PARTICIPATION
2.6% of 26 million residents in Australia are Muslims, according to the last official census in 2016. Dhedhy estimates double that number, around 1.2 million, are Muslims, based on Hejaz’s survey of its clients that revealed just under 60% declared their religion as Islam on the national census.
Whatever the exact number, the participation of Muslims in the financial system is low, according to Dhedhy. "Australian Muslims have a limited participation in the conventional financial services system as the products being offered do not meet Shariah laws,” he said.
He believes their participation in Islamic financial services is also limited due to factors including a lack of awareness, and lack of accessibility to competitive and well-performing products.
One Islamic finance segment that has seen consistent participation is home financing, with MCCA saying it has financed over 2 billion Australian dollars since it started in 1989, and Crescent Group getting into the market late last year with DomaCom.
Hejaz as well sees a large potential customer base for Islamic home financing. There isn’t a definitive number on current Muslim home ownership but as an indication, a 2015 study said 68% of Australian households either fully owned or were owner-purchasers of their home. The corresponding figure for Muslim Australians was a lower 52%. Strikingly, almost half of Muslim Australians lived in privately-rented houses compared with 26.9% of all Australians.
Amanie’s Malek reiterates that beyond improving Muslims’ literacy to increase their participation in a suite of products, it is better to focus on a wider range of customers.
“Educating consumers as well as raising awareness, particularly among non-Muslims will be important,” she explained. “There would be only 500,000-600,000 customers that would use Islamic financial services out of the entire domestic Muslim population.”
Looking ahead Dhedhy said he is confident Hejaz will be able to grow and scale both at home and abroad.
“We believe that within three to five years we will have 50,000 customers in Australia. We also have global ambitions and aim to expand out to New Zealand as well as more established Islamic finance markets like Singapore and Indonesia.”
A key part of achieving this will be to expand the firm’s product portfolio. Hejaz plans to launch more funds in the next few months, as well as retail banking products once its authorised deposit-taking institution license is approved.
The privately-owned company will require more capital as it grows and scales, and when it gets its banking licence. To this end, Hejaz has approached onshore and international investors, said Dhedhy.
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