After about a decade of crucial foundational work, IBA Group has finally received its long-awaited regulatory go-ahead to operate as Australia’s first-ever Islamic bank; and in an interesting turn of events, it will forgo the traditional brick-and-mortar approach and instead, go fully digital.
IBA Group – now known as Islamic Bank Australia – was granted a restricted authorized deposit-taking institution (ADI) license from the Australian Prudential Regulation Authority (APRA). The authorization allows Islamic Bank Australia to build its systems and test its products before launching to the general public under a full ADI license. The bank intends to offer consumer banking products first including home finance and banking account, with a view of penetrating the SME and business banking segments at a later stage.
“With more than 3% of the Australian population of the Islamic faith, Shariah compliant banking in Australia is long overdue,” Dean Gillespie, CEO of Islamic Bank Australia, said.
Long overdue indeed. Founded by 13 Muslims, Islamic Bank Australia began engaging the regulator in 2012 to navigate the Australian regulatory environment in the absence of a dedicated Islamic finance law. Throughout the years, the group – backed by the UAE’s Abreco Group – faced significant hurdles including a moratorium on new banking licenses in 2020 amid the COVID-19 pandemic. Speaking to IFN, the sister publication of IFN Fintech, in 2020, Gillespie had initially hope that then IBA would secure an APRA approval in 2021.
Going digital is a strategic move to capture the country’s increasingly digital-savvy Muslim population, in line with trends seen in other parts of the world. Two out of the five digital bank licenses recently awarded by the Malaysian central bank were for fully-fledged Islamic banks, while non-Muslim majority markets such as Germany and the UK are home to Shariah compliant digital banking start-ups.
Islamic Bank Australia was advised by Hall & Wilcox, which prepared a submission to APRA under the Financial Sector (Shareholdings) Act 1998 for approval of shareholdings in excess of 20% with respect to Islamic Bank Australia’s restricted ADI license application. It also prepared the Australian credit license and Australian financial services license applications to the Australian Securities and Investments Commission and advised on the bank’s corporate structuring, an employee share option plan and a AU$10 million (US$6.79 million) capital raising to meet regulatory capital requirements.