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INTRODUCTION: The Federal Government has set out to attract Islamic banks to Australia. The Trade Minister, Simon Crean today launched the Government's first publication on Islamic finance. He says the sector is booming, worth more than a trillion dollars and growing at the rate of 10 per cent a year. Mr Crean is keen for Australia to be part of the action by serving almost one billion Muslims in the Asia-Pacific and tapping into the vast pool of petro-dollars.The Minister spoke to Alexandra Kirk.

SIMON CREAN: Australia is not only a very strong financial services sector and we want to make it bigger it's also a safe one. But what we have to do is to move with the times. We have to take advantage of where the big growth is and particularly, to be able to attract sources of finance in these regions that are going to be trading in our commodities and in our goods.

ALEXANDRA KIRK: The booklet coincides with the launch today of Westpac's launch of an investment vehicle for Islamic institutions; you're in effect promoting Islamic finance, is that the role of the Government to do that?

SIMON CREAN: Well of course it is, because it's a trade opportunity. And the thing that struck me when we had our discussions in Malaysia 18 months ago, was how they were positioning themselves to become a financial services hub, particularly for Islamic finance. Where the UK has done it, given active support to it, if Australia wants to position itself as a financial service hub for the Asia-Pacific region, it has to - in my view - embrace Islamic financing too.

ALEXANDRA KIRK: Would Islamic banks operating Australia, do you think, provide extra competition in the domestic markets, seeing as though they don't charge interest?

SIMON CREAN: Well first of all, competition is a good thing and secondly they notion that they don't charge interest doesn't mean that they don't take a profit. Because Shariah law, Islamic law prohibits the earning of interest. The instruments that we have to develop for Islamic financing focus on profit sharing and buying and selling of tangible assets, such as property, such as commodities. Now given that Australia is strong in both of those asset classes; commodities and property, it makes sense, if we want to attract more trade, more economic activity that we also adapt the financial instruments. But, don't anyone let you think that this is giving a free ride or interest free loans.

ALEXANDRA KIRK: In effect they charge a fee and they operate under Shariah law and so, on that basis do you think they'll really take off in Australia?

SIMON CREAN: Well a number of products have already been put out there Alex and clearly the Westpac one today suggests that they see an opportunity to take off. The problem here is that there are both taxation and regulatory restrictions on it.And because it's not earning interest, or can't charge interest but is charging a fee, it can get caught up at times with double transaction taxes, so it's at a competitive disadvantage.

ALEXANDRA KIRK: Are you planning to change those?

SIMON CREAN: That's the key aim of the... or it's been identified as an issue in the Johnson report, the one that came out the other day, that needs to be addressed and we will seek to do that in the context of an overall response to both the Henry review and this financial services sector issue.

ALEXANDRA KIRK: Islamic banks escaped to a large extent the worst ravages of the global financial crisis, is that another reason why you'd be promoting them?

SIMON CREAN: I think the key is that they're interested in us and we should be interested in them because we also escaped the ravages of the financial crisis. The great strength of the Australian financial services sector is its innovation, safety and its regulatory base. Why shouldn't we be looking to develop more products in terms of a hugely emerging market?

ALEXANDRA KIRK: To what extent are Islamic banks or financial institutions linked to governments in their respective countries?

SIMON CREAN: Some are and some aren't. That has to be taken into account in any of these issues, particularly if they involve direct investment by the Foreign Investment Review Board.

ALEXANDRA KIRK: Are you prepared for that?

SIMON CREAN: Of course we are. But I think that the bigger question is, a lot of the sovereign wealth funds around the world, including our own Future Fund, is quite frankly linked to government, because they reflect the surpluses that government's have accumulated in the past.

ENDS

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