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Islamic banking in Australia soon

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MELBOURN: As Hejaz Financial Services continues its journey to become Australia’s first Islamic bank, the lender is encouraging brokers to discover its unique offering and fast-growing customer base.

A leading Islamic financial services provider, Melbourne-based Hejaz Financial Services was launched by founder and CEO Hakan Ozyon and chief operating officer Muzzammil Dhedhy.

“The aim was to provide the Australian Muslim community with a holistic financial services solution,” Dhedhy said.

“There was a significant gap in the market where you had a few smaller, suburban operators, some doing lending, some doing investments but you really didn’t have a large institutional organisation that was offering an end-to end bank-like solution targeting this Australian Muslim community.”

Dhedhy said there are 1.2 million Muslims in Australia and prior to Hejaz, they did not have access to a comprehensive financial offering tailored to their specific religious requirements.

“The concept of halal or sharia compliance extends to all aspects of a Muslim person’s life, it encompasses their finances, their family life, their marital life, their food, their general religious customs, the way they live,” he said.

The role of Hejaz Financial Services in the Muslim community is to provide a full range of financial solutions.

Dhedhy said the non-bank lender started out providing financial planning, then added accounting, Hejaz Asset Management, and also a $135 million managed global ethical fund, which is the largest standalone Muslim fund in Australia.

“We now have an equities fund, a property fund, an income fund,” he said. “We’ve also expanded into the lending side – so we also offer home finance, construction property and commercial finance and we are looking in the next few months to expand into auto finance.”

In the Islamic faith, charging interest on loans is not permitted and Islamic laws outline the process that needs to be undertaken to make a financial product sharia compliant.

Hejaz Financial Services uses the ijara financial model for its loans. Ijara is based on the notion of a shared equity rental.

“A customer comes to us as a financier, let’s say they have a 20% deposit for their home, we go in and finance the remaining 80% equity in that property,” Dhedhy explained.

“The client’s payments are broken into two components, one is a principle component that enables them to acquire our equity interest in that property from us over a period of time. The other is an ijara payment, a rental payment for using the equity that we have in that property for their use or share of that property.”

Dhedhy said, in terms of assessment, eligibility and serviceability, Islamic loans are very aligned with usual principal and interest loans using standard metrics.

“From a broker’s perspective, we have a serviceability calculator, an application form, documents checklist, clients are required to provide us with pay slips, tax returns – it’s the same as any other ordinary loan, the only difference is that the contract we use is not a regular loan contract, it’s called a finance facility agreement,” he said.

This finance facility agreement enshrines the terms and conditions required under the ijara model of Islamic finance and the National Consumer Credit Protection Act.

Dhedhy said Hejaz has a rapidly growing client base and loan book.

“One of the key achievements of the business last year was that we, for the first time in Australia, put together a broker-based Islamic loan offering,” he noted.

“This was the first time where a Muslim person could go to their local broker and source an Islamic loan from that broker rather than having to come to an Islamic institution directly – that was a real ground-breaking experience for us.”

By the end of 2021, Hejaz had about 380 accredited brokers on its book and it now has about 400.

“We are seeing healthy volumes coming through that channel which tells me that brokers are embracing this,” Dhedhy said.

“Brokers are saying there’s a captive audience out there that requires these unique products and services. By becoming an accredited broker with Hejaz, they are provided with the support and training to be able to offer that product.”

Dhedhy said Hejaz has a dedicated BDM team and also partners with aggregator Finsure, educating brokers on their products and services, with more aggregators being added soon.

Hejaz has five loan products, offering competitive rates and catering for full doc, low doc, construction, refinance and some non-residential clients.

“We are also expanding into asset finance later in the year,” he noted.

Hejaz has applied for a licence to become Australia’s first Islamic bank, making a presentation to the APRA in mid-2021 and holding a number meetings with the regulator.

“We’re quite confident that by the end of this year or early next year we should have the restricted ADI and then become a full ADI after that,” Dhedhy said. As part of that plan, Hejaz appointed three new senior leaders in December – head of lending Andrew Oey; head of customer service Samrah Sahi, and general manager sales and distribution Michael Trist.

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