Purpose and Prosperity: Reimagining Islamic finance down under

Islamic finance, as an industry, often finds itself at a crossroads. While there is much to celebrate -  double-digit growth and the establishment of a global trillion-dollar industry - there is also a need for honest introspection.

Too often, Islamic finance insiders dwell on external barriers: regulators, the global riba (interest-based) system, or the so-called “conventional” competition. These were valid concerns during the foundational years of modern Islamic finance (1970s–1990s). 

Today, however, such rhetoric risks are becoming an excuse for stagnation and complacency. Many conventional financial institutions and financial technology (fintech) companies have solved financial service challenges while adhering to principles far more aligned with the ethos of Islam than the Islamic finance industry has managed.

Yet, my critique comes from a place of deep belief. 

Islamic finance, at its core, is more than an alternative system to conventional finance. It is a mission-driven endeavour rooted in divine guidance, embodying justice, inclusivity, and sustainability. 

The Qur’an repeatedly emphasises these values while cautioning excess, extravagance and hoarding:

“Cooperate with one another in goodness and righteousness, and do not cooperate in sin and transgression.” (Al Qur’an, 5:2)

The Sharīʿah, as a socio-legal and ethical framework, seeks to ensure shared prosperity and justice. Yet, the disconnect between these principles and their application in modern Islamic finance is glaring. Even without accounting for the undisclosed private wealth of the Muslim ultra-rich stashed away in tax havens such as Switzerland or Singapore, there is a major inequality problem. 

The top 5 countries, as measured by total Islamic finance assets such as Saudi Arabia and Malaysia, represented ~81% of the total industry in 2022. None of the five countries with the largest Muslim nations such as Indonesia and Pakistan feature among the top Islamic finance centres. 

The data is clear, Islamic finance is primarily for and used by the wealthiest Muslims. This divergence must be rectified.

Rethinking Islamic finance in Australia
While a significantly smaller and more recent market, Australia’s Islamic finance sector exemplifies some of these challenges.

Australia has lagged more innovative Islamic finance markets like the United Kingdom, the United States and Singapore, where product diversity, robust institutions, and community foundations thrive.

In my reflections on the root causes for the obstacles to a flourishing Australia Islamic finance market, three things jump out:

Right products: Proliferation of “packaged” products
Islamic finance products are often packaged as “Shari’ah-compliant” without a wholesale bottom-up, comprehensive solution. For instance, many Islamic home loans are processed by brokers who repackage interest-bearing contracts from wholesale funders and banks under Shari’ah-approved structures. 

This “middleman” approach where the mortgage broker stands to make windfall risk-free brokerage fees leads to higher financing costs, longer processing times, and opaque pricing.

If we truly aspire to develop sustainable solutions, why haven’t we developed Shari’ah-compliant models like Brighte (green financing), Athena (home financing) or Prospa (business financing) who reimagined financial intermediation using digital innovations? 

Moreover, we need to develop upstream funding markets with securitisation and warehouse funding to create fixed income investment opportunities via sukuk issuances.

Right governance structures: Licensing and regulation
The proliferation of unprofessional, poorly structured schemes has undermined trust in Islamic finance. Reports of financial scandals and collapses highlight the risks of inadequate governance. Establishing properly licensed, well-regulated institutions is expensive and more challenging to launch but non-negotiable for the sector’s credibility and stakeholder protections. 

Right education: Going beyond halal
The assumption that labelling something “halal” will attract customers is fading.

Customers demand competitive, user-centric and value-driven products, especially Millennials and Gen Z customers. For example, there is blind faith in the property market – something that was unfortunately to the detriment of investors in the $200 million Qartaba Homes project who didn’t understand the liquidity and development risks. Over the past 30 years, real estate in Australia has appreciated at an average growth rate of 6.4% (before ownership costs). 

Meanwhile, the S&P 500 has achieved 9.9% over the same period. Over-reliance property investing diverts resources from critical areas like business financing, entrepreneurship and agriculture.

Opportunities for transformation
To bridge these gaps, the Australian Muslim community must work collectively across educational, religious, non-profit and corporate segments to:

1.    Develop talent
We lack tier-1 Islamic financial institutions to train the next generation of financial managers and entrepreneurs. In their midst, encouraging bright minds - particularly women - to pursue careers in finance, albeit with conventional financial institutions is critical. We need to address the stigma with working in finance and counter the unjustified emphasis on medicine, engineering and law that attracts the brightest young minds. Leaders in finance must also step up, taking lucrative pay cuts with new ventures if necessary to build enduring community-focused institutions.

2.    Embrace innovation
Rather than replicating conventional products, we should focus on disruptive models. Take Afterpay, which transformed point-of-sale consumer finance without requiring credit scores (using a trade-based murabaha financing model). Islamic finance needs bold thinking to address systematic financial service gaps.

3.    Educate consumers
Misconceptions about Islamic finance abound. Many believe it prohibits debt outright, ignoring nuanced Islamic rulings. 
Additionally, long-term investment vehicles like awqaf (endowments) or private credit remain underutilised compared to property funds and home financing. Effective consumer education is vital to empower communities and redirect resources toward long-term, impactful initiatives.

Inspiration and progress
Despite its challenges, Islamic finance is evolving. Across the globe, visionary leaders are pushing boundaries in partnership with conventional institutions.

For example, the US recently welcomed its first Islamic bank, Stearns Salaam Bank, incubated by a 110+ year-old institution committed to financial inclusion. 

The initial spark? The large under-served Somali Muslim community in Minnesota.  In Saudi Arabia, the Islamic Development Bank has pioneered blockchain-enabled systems to stabilise prices of assets traded on organised markets with SettleMint. At Wholesum, we are trying to offer a genuinely innovative investment product – passive income investing that pays monthly profit distributions from financing a global pool of small and medium-sized businesses (SMEs). 

The World Bank estimates that SME financing is key to socio-economic development and face a $5.2 trillion annual funding gap. These success stories highlight what’s possible when we embrace innovation and systematic thinking.

We must reframe Islamic finance not as an exercise in fear—avoiding riba out of concern for punishment—but as a vehicle for building a just, inclusive financial system. With inspiration from the Shari’ah, and a coalition of like-minded partners, we can develop products and services that are truly impactful and competitive.

Dr. Tanvir Ahmed Uddin is the founder and CEO of Invest Wholesum

Note: This editorial reflects the personal views of the author and does not represent the views of Wholesum, Wholesum’s affiliates or any other organisation that the author has associated with currently or in the past.