| 14.06,09. 10:28 AM |
Muslims get interest-free loans
June 14, 2009 12:00am
ONE of Australia's major banks is planning to introduce "Muslim-friendly" loans that do not charge interest, to comply with Sharia law.
Instead, the National Australia Bank will structure an Islam-approved line of finance to make money from alternative methods.
These include profit-sharing on the transaction, joint-ventures or leasing-type arrangements.
For example, to get round the Islamic ban on usury - or unfair lending - a Muslim mortgage often works by the bank buying the property, then selling it to the customer at a profit, with the customer then repaying the entire sum in instalments.
In this way the profit margin is built in from the start. It also has the advantage of making the loan immune from future interest rate rises.
NAB said the loans, which will start out small, will have to be cleared by a Sharia Advisory Board to ensure they meet strict criteria before they can be made available to the public.
"We are dipping our toe in the water with this scheme and thought we may be able to offer this product in high-density Muslim areas," said Richard Peters, head of community finance and development at NAB.
"We suspect there is demand out there, but we don't know how big it is, so we will trial a few products first."
For the trial's purposes NAB will pump $15 million from its not-for-profit finance division into the program, which will distribute the funds through various community finance schemes around the country. The bank will monitor the take-up and assess potential demand.
Interest-free loans of up to $1000 will be available to help finance household items, such as washing machines and fridges.
The loans would also be available to non-Muslims.
The news comes just days after federal Assistant Treasurer Chris Bowen said that Australia could exploit international demand for Islamic finance to create more jobs.