The Islamic Bank of Australia has announced it will launch its first bank in the country next year.

The bank will be the first of its kind in Australia to follow the Islamic economic principle, one of which is abolishing interest on rates or savings, and not allowing stock trading.

It also refrains from investing in businesses seen as “harmful” to the Muslim community and usually appoints an alternate board to ensure they remain compliant with Sharia law.

Royal Melbourne Institute of Technology senior lecturer in finance Muhammad Safiullah says the Islamic Bank of Australia has been given approval by the Australian Prudential Regulation Authority.

Dr Safi says the bank will apply for another application to open in mid-2024 and will be a game changer for many Muslims living in Australia.

“What this means for Muslims is they can do banking in line with their faith. At the moment there is no option, no banks available in Australia that operate based on the religious guidance of Islam,” he says.

According to the Australian Bureau of Statistics, more than 800,000 people living in the country identify as being Muslim.

Centre for Islamic Economics Australia project manager Mufti Shabir Moosa says while there are more than 66,000 Muslims in Western Australia, the bank will be open to all.

“Islamic teachings that emanate from the bank are not only beneficial to the Muslim consumer. Instead, it’s about ethical practice, and anybody who has an ethical worldview will find a very comfortable place in this space,” he says.

Dr Safi says what sets Islamic banking apart from other banks is that intrinsically, Islamic banks will not invest in anything that is considered harmful to society.

“Islam doesn’t allow Islamic banks to enter or to do business with certain business business sectors, for example, tobacco, alcohol, gambling, arms production which are deemed harmful for society.”

Dr Muhammad Sufi

Financing in renewable energy is something Dr Safi says would be one of the top priorities of an Islamic bank, citing the Islamic finance product Sukuk as an example of an Islamic financial practice funding green energy.

Curtin University economics student Ryan Kirby says while he is not Muslim, the thought of belonging to a bank with ethical practices is enticing.

According to the Lowly Institute Poll 2023, 70 per cent of Australians aged between 18-44 support banning coal mines. Despite that, many of the big Australian banks still invest in fossil fuels.

Mr Kirby says there are not many options to adopt ethical banking practices within major Australian banks.

“It’s a little bit off-putting when the four largest banks that lead the pack do nothing to move to a more sustainable and more ethical investment structure,” he says.

Curtin University business ethics lecturer Jacqueline Boaks says many young people are driving the change when it comes to forcing businesses to behave ethically.

A study conducted by Responsible Investment Association Australasia in 2022, revealed younger investors are increasingly interested in ethical investing, and they’re also highly conscious of greenwashing

“It’s this push and pull intensively of what we as consumers and members of society demand from these companies,” Dr Boaks says.

She says it’s possible non muslims may sign up for an Islamic bank if it fits with their beliefs.