The Northern Territory news Thu 13 May 2010
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10 NT BUSINESS REVIEW, May, 2010 P U B : N T N E W S D A T E : 1 3 -M A Y -2 0 1 0 P A G E : 1 1 0 C O L O R : C M Y K New finance model rules out interest By LEON LOGANATHN of Ward Keller lawyers WHEN I first arrived in Darwin more than 20 years ago I always had an inkling our city was well placed literally to grow an economy aligned to something far bigger than we perhaps dared to dream at the time. Perhaps it was the unfettered optimism of youth. Whatever it was, the optimism was well placed the Darwin of the early 1990s might as well have been the 1920s compared with how far we've come in such a relatively short time. Back in the day, the best coffee you'd get in town was instant Nescafe out of a can and powdered milk. Today, it's sushi and lattes. It's people from all walks of life, from all parts of the world who have decided to make the Territory home. And in typical Territory attitude people here are prepared to have a go, doing things differently and trying new things. It's an attitude that sets us apart and I'd go so far as to say it's a competitive edge we should encourage and harness. In fact, I came across something new well, in relative terms at least while attending a meeting last month in Malaysia of our partner law firms from the Lawyers Associated Worldwide network. I was sitting next to my good friend Beng Chai from the top 10 Malaysian legal firm of Tay and Partners and he told me all about "Islamic finance''. What is it? Islamic finance is a boom industry globally. It's a system of financing that does not charge interest, because charging interest is prohibited under Islamic law. Many of you will be asking: "How do you make money as a lender if you don't charge interest?'' The simplest explanation is that instead of charging interest, the financier takes a share of the business or asset that is being financed and that share is then sold back to the borrower at the end of the period of finance. So, in effect, the financier takes a return as an investor by way of dividend as opposed to the western banking financier model where interest is paid for use of borrowed funds. Beng Chai, whose firm is a leader in Islamic finance law, told me Islamic finance doesn't see itself as a challenge to established western banking financing model. Rather, Islamic finance sees itself as a complimentary and alternative option for the marketplace. The best public relations for Islamic finance is courtesy of the global financial collapse. Images on our TV screens this week of Goldman Sachs executives fronting a hostile US Senate Committee investigating Wall Street banks' behaviour in the lead-in to the collapse has left a sour taste in the mouths of many. The idea of a financing system that is disdainful of excessive risk and outright speculation is something the market is looking for right now. And, crucially, Islamic finance is responding to market demand and booming. Last year, the estimates say Islamic finance was worth US800 billion. Next year it could be double this. It is one of the fastest sub-sectors of world banking. I'm not the only one talking about Islamic finance seriously. Just this week Senator Nick Sherry, Australia's Assistant Treasurer, revealed Australia would overhaul its tax laws so we can tap into this booming financial services market. "Some other countries have changed tax and legal regimes. One is the UK, another is Malaysia, so we do have to deal with these legal issues to hopefully draw level and go past some of these other countries,'' Senator Sherry said. "I'd be hopeful we can identify where the law needs to be changed by the end of this year and hopefully have some and well we need to have legislative change by next year.'' Brilliant, I say. And, believe it or not, Islamic finance is about to make its mark on our great city of Darwin. I'm advising a number of clients who are looking to develop multi-million dollar projects in the near future. One of these clients is taking a long, hard look at Islamic finance and I'm confident we will see a major project in Darwin before too long financed in this way. How incongruous would that be? Islamic finance used to build major private and public projects in not only Darwin but across the Outback of Australia. And that's the great thing about being in the Territory people are always keen to look at new ways of doing things. Islamic cash splash FUTURE FACE: there's nothing mysterious about Islamic finance COMMENT10 We will see a major project in Darwin before too long 4 6 fa 4 4 /1 0