Islamic bonds find favour in Australia

Insurance Australia Group (IAG) is growing in Asia, but also interested in Australia. Its chief executive Mike Wilkins recommended Australia pull down tax barriers in order to encourage Islamic finance. The federal government is yet to respond to a subsequent Board of Taxation review. Indonesia is also a target market for IAG. In order to fund its takaful liabilities, IAG would need to invest the cash flows received from policyholders into sharia-compliant products such as sukuk. At present however, because sukuk is based on several transfers of assets into and out of an SPV, the cost of issuance os well above a conventional bond.