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The contemporary Islamic finance is no longer an uncertain experience but a reality and is likely to keep growing at a rapid clip

The contemporary Islamic finance is no longer an uncertain experience but a reality and is likely to keep growing at a rapid clip. Thus it cannot be dismissed as a passing trend of what is described as a state of Islamic revivalism. Islamic finance has emerged in recent decades as one of the most important trends in the financial world. There has always been a demand among Muslims for financial products and services that conform to the principles of Islamic Shariàh. While the global value of total assets managed according to Islamic principles is still relatively small, these are growing at a pace well above 15 per cent annually which, if sustained, will eventually lead to amounts that are a significant proportion of global GDP. Approximate estimates place it at about USD$260 billion according to estimates provided by the General Council for Islamic Banks and Financial Institutions . A further $200 billion to $300 billion is managed by the Islamic banking branches and subsidiaries of international banks in the world’s major financial centers such as New York, London, Paris, Geneva and Tokyo. Although small in terms of the total global assets managed by these financial intermediaries, the growth rate is impressive. The proponents and promoters of Islamic finance and banking are routinely characterizing this growth as explosive.

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The market for Islamic Banking is worth more than US $200 billion and is expected to grow at 13 to 16 per cent a year over the next eight to ten years. The target market consists of more than 1.2 billion Muslims and the business is expected to have explosive growth (Global Islamic Banking Consulting).

Mutual funds constitute one of the fastest growing areas of Islamic finance. Opinions vary over the total value of equity funds under Islamic management with estimate ranging from $1,000 million to $3,000 million. However, there is no dispute that the industry is expanding rapidly … The growth of the sector has been explosive (Institute of Islamic Banking and Insurance).

This is a clear recognition of the viability of Islamic financial industry and its firm significance in today’s banking worldwide.

The objective is to examine the viability of Islamic financial institutions vis?à?vis their microfinance facilities in the interest?based economy of Australia, which contradicts the ideals of Islamic financial system. The examination has been carried out within the general framework of Islamic financial principles and precepts.

this study offers an introduction to the emergence and development of Islamic microfinance in Australia, focusing the needs of financing a large and growing Muslim community in line with their Islamic tenets. It also studies the current realities of the Islamic financial system of Australia from the perspective of the theories of modern financial intermediation and Islamic microfinance contracting. This paper explains the key role of Islamic financial services providers in Australia in fulfilling the microfinance needs of Muslim community. It also evaluates the Islamic microfinance techniques used by the IFSPs of Australia.

The Islamic population in Australia has grown substantially in the last decade, particularly due to immigration from South East Asia and the Middle East. According to the Australian Bureau of Statistics, in 1991 there were 147,500 Islamic followers, and in 1996 this grew to 200,900. Between 1996 and 2001, there were just over half a million new arrivals to Australia. Of these, 9 per cent were affiliated to Islam.

In response to the needs of this large and growing community mainly for microfinance, the Islamic finance emerged through establishment of the Muslim Community Co?operative (Australia) Limited, better known as MCCA in 1989. Although a few other IFSPs are providing their services the MCCA is the largest in its kind in this country and it caters for microfinance needs of Muslims looking based on religious principles. In spite of the fact that the MCCA and other IFSPs who claim to operate in line with the principles of Shariàh have seemingly been operating successfully and playing an increasing role in community development and the country’s economic growth there has been little comprehensive research on Islamic microfinance in Australia. This provides a proper field of study since to the researcher’s knowledge; it has not been tackled before so extensively, as it deserves.

This study is limited in scope in a sense that it is not a comparative study of Islamic financial system with doctrines of other religions, ideologies and systems. The paper reviews within this limited scope and content the functions and practice of Australian IFSPs in particular in Islamic microfinance.