Australia's housing policy has come a long way over the past year, as the Albanese government tries to help more people buy their first home.
Last October, the federal government expanded its Home Guarantee Scheme , removing income caps and opening the scheme to all first home buyers with a 5% deposit.
Since then, it has also launched the Help To Buy shared equity scheme and announced major reforms to negative gearing and the capital gains tax discount.
The government claims these schemes are for everyone. One, however - the 5% deposit scheme - has a significant blind spot. The scheme operates through a panel of more than 30 approved lenders . But it doesn't include a single Islamic finance provider offering faith-compliant home loans.
For the many Muslim Australians who observe the Islamic prohibition of riba (interest), the door remains shut unless they compromise on their faith.
The exclusion from this scheme isn't deliberate. It's a side effect of the way our banking system has been designed.
Here's how Australia could follow the United Kingdom's lead to update the system and give Muslim home buyers a fair go.
How home loans without interest work
First, it's important to have a basic understanding of how Islamic finance (sometimes called Shariah-compliant finance) works.
The Quran, Islam's holy book, explicitly forbids the practice of charging interest on loans. But it does not prohibit earning a return altogether. Islamic financial institutions can still make a profit under strict rules, usually by buying, selling, or leasing a real asset rather than charging interest on a loan.
In broad terms, many of these loans are instead structured around paying a lender an agreed amount of rent for an underlying asset (like a home) while the principal is paid off over time.
Expanded access that still excludes
To access the government's First Home Guarantee 5% deposit scheme, you'll need to apply for a loan through one of its participating lenders . The federal independent housing delivery agency, Housing Australia, has authorised these lenders to access and offer the scheme.
With the exception of Indigenous Business Australia, a Commonwealth statutory body, these lenders are all what are known as authorised deposit-taking institutions . This means they've been formally licensed to accept deposits from the public and conduct other banking business.
Currently, no Australian Islamic finance providers have an authorised deposit-taking institution licence. That's because their business model isn't built around accepting deposits and using them to earn interest.
Australia's first Islamic bank, Islamic Bank Australia, was granted a restricted licence in 2022 , but this was revoked at the bank's own request in 2024 after it reportedly struggled to raise the necessary capital and had no customers or deposits. The institution has since changed its name to Islamic Money Australia.
So despite being regulated by the Australian Securities and Investment Commission and holding Australian credit licences, no Australian Islamic finance providers are on the list of approved lenders.
A disproportionate impact on women
My own recent research shows how this limited regulatory recognition of Islamic financial principles extends beyond housing.
Successive governments have acknowledged the absence of Islamic finance from Australia's legal and regulatory architecture. But it has not been addressed.
The cost is not evenly distributed and falls most heavily on Muslim women, who already face compounded financial disadvantage . This is shaped by factors such as the gender wealth gap, lower superannuation balances, lower workforce participation rates and the structural barriers that come with being part of a culturally and linguistically diverse community.
These challenges faced by Muslim women need to be understood through the lens of intersectionality, a term coined by US scholar Kimberlé Crenshaw . This is the idea that overlapping social identities, race, gender and class, create compounding discrimination and privilege.
For Muslim women specifically, this also includes structural disadvantages such as Islamophobia and racism.
A Muslim woman who is professional, employed, financially capable and has saved a deposit will be unable to access the government's flagship first home buyer scheme if she is looking for a faith-based lender.
What the UK did
The UK has faced similar challenges in accommodating Islamic finance. But more than two decades ago, it took steps to address them.
From 2003 onwards , the UK amended its laws to bring Islamic finance into its mainstream regulatory framework. This included explicitly recognising Shariah-compliant products within its banking regulation and licensing Islamic banks to operate as regulated deposit-taking institutions.
This process required extensive consultation with the Muslim community and collaboration between government, regulators and the Islamic finance industry.
But as a result, the UK set up a number of Islamic banks . These include AlRayan Bank which serves hundreds of thousands of customers with regulated, compliant home finance.
What Australia could do
In principle, what needs to change is not complicated. However it needs genuine political commitment to examine how the housing scheme's loan eligibility framework can cater for Muslim Australians.
These questions have been raised before . The political will to work through answers is what's missing. The UK shows what's possible.
Maria Bhatti does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
