The role of Islamic finance in reducing financial exclusion: an exploratory case study of Muslims in Queensland, Australia

The role of Islamic finance in reducing financial exclusion: an exploratory case study of Muslims in Queensland, Australia

Nearly 3 billion people in the world faced the difficulties in accessing formal financial products and services on the basis of financial exclusion. Financial exclusion refers to a situation where individuals lack access to appropriate and affordable financial products and services. In 2012, approximately 3.1 million of the Australian adult populations were identified as being financially excluded.

The purpose of the study is to explore the nature and extent of financial exclusion of Muslim community in Queensland, Australia as well as to understand the overall socio-economic structures and banking behavior of the community including their access to conventional finance. Based on the available data, there are 476,300 Muslims in Australia as at 2011. Approximately 20,300 Muslims resided in the state of Queensland.

The research method employed by the study is by using qualitative survey questionnaires. The main finding of the research is that the Muslim community in Queensland, Australia are financially excluded due to the absence of banking and finance products that would meet their needs and comply with the Shariah (Islamic Law). Although the Muslim community in Queensland, Australia have a preference for Islamic finance products and services, the current Islamic finance products being offered in Australia are limited and do not enhance their financial inclusiveness. Based on the findings, the main reason for the problem is that Islamic finance facilities are not widely offered in Australia but it was centralised in two major cities - Sydney and Melbourne. There are no Islamic financial institutions in Queensland and as such, this limits the access of Muslims community to the financial system that is consistent with their religious beliefs. Another revelation from the study is that it appears that there is no mechanism in Australia that would compel the IFSPs to comply with regulations and directions of the international Islamic regulatory bodies.

On the other hand, the study discovers that there are no Islamic insurance products in Australia. The insurance market in Australia are dominated by conventional insurance, hence, again this has deprived the Muslim community from accessing insurance products that is in line to their belief.

The fact that the majority of the Muslims observe Shariah-compliance in all aspects of their lives, including the consumption of financial services, means that they will remain financially excluded unless authentic, suitable and competitive financial products are offered to them. The current provision does not appeal to many people of this community at all and thus the effect that the current Islamic finance products have had on enhancing their financial inclusion has been minimal. The limitations of access to products and services that are in compliant with Shariah (in terms of banking, finance and insurance) have created a gap between the Muslims community and the financial systems in Australia. This suggests that a holistic and coordinated effort is warranted if this chronic problem is to be dealt with. This research concludes that the Muslims in Queensland are financially excluded from Australia’s financial systems.