In the 1990s there was a small movement to begin new credit unions. This was going against the grain as while membership numbers were increasing credit unions were amalgamating in order to stay competitive. This trend continues today …
In 1999, the Muslim Community Cooperative Australia (MCCA) established the Muslim Community Credit Union. Alas, it only survived until 2003. MCCA was in fact a similar organisation to the credit union but it was limited by resources and the Victorian Cooperative Act in what it could achieve.
We need to remember that these Muslim enterprises must comply with the Islamic Shariah (Islamic Law). The CEO of the MCCA, Mohammad Nassar Hakim, was interviewed in the April 1999 edition of Directions magazine where he explained the nature of Islamic finance and his hopes for the credit union. The system is aided by the Islamic tenet which requires any Muslim earning money to pay 2.5% to the poor or needy. This aided the financial viability of the Muslim Community Credit Union.
“We ask members to donate money into a trust account for interest free loan funds. The donation can be as small or large as they can manage. For example, a Bosnian family may wish to bring relatives to Australia, but may not have the funds to do it. They have jobs but not the extra money to pay for this. We give them a loan and they pay back that exact amount. This is called the Qard Hassan Fund,” said Hakim.
In the same piece Hakim explained how loans operated in the credit union:
“If you want to buy a house, the terms of the agreement are based on a diminishing partnership agreement. If you can’t buy the whole house because you don’t have the cash, then the credit union becomes a partner. We then lease our share to the buyer, and they gradually buy it from us. The rent the buyer pays is adjusted down as the credit union’s equity in the home drops. There are two components to the buyer’s payments – rental and buying the credit union’s equity.
Should a person find themselves in financial difficulty, they can still pay the rent on the part they don’t own, while taking a break from buying the credit union’s equity. With the partnership agreement, if the property is sold to a third party then the partners get the value of their equity. This is how the cooperative currently operates.”
In 2010, Connexus magazine, Abacus’ successor magazine to Directions, published an article on Islamic finance and included an interview with former CEO of the MCCA, Chaaban Omran, who outlined the reasons for the unfortunate demise of their credit union.
The article paraphrased him by recording that “On the banking side MCCA had a credit union license for three years but had to give it up in 2003 and return all deposits to its members because it was struggling to meet capital and liquidity requirements. A solid financial partner would have allowed MCCA to continue its banking services”.