Proponents of Islamic finance in Australia have been heartened by proceedings in the Royal Commission.At an Islamic finance forum hosted by King Wood and Mallesons in Sydney yesterday, the suggestion was floated by one of the panellists that, as the Royal commission investigates multiple breaches of the corporations law and other failures to meet public expectations, this has pushed the door slightly more ajar for arrangements such as Islamic finance which can trade on the fact that these deals are by their very nature more ethically motivated.The Islamic community is closer than ever to setting up a sharia-compliant bank, despite not being given the benefit of legal and tax changes that it needs to become cost-effective with conventional financial arrangements. Dr Rashid Rasheed, an Islamic scholar specialising in the "dynamic compliance of Islamic financial laws in the modern regulatory environment", and a director of the Islamic Bank Australia project, told the meeting that the IBA was in discussion with the prudential regular, looking to sort out any major misgivings such as how the products and services will be classified in an arms-length manner.Changes mooted in the 2016 Federal Budget but not passed are now among the many "zombie" measures that will fade away to irrelevance ahead of the next Federal Budget in May.Dr Imran Lum, a director of Islamic finance in the private capital markets team at National Australia Bank, told the meeting his banks had not waited for the tax and stamp duty laws to change, although some were still too hard to overcome.National Australia Bank, for instance, has lent A$370 million in sharia-compliant funding in Australia over the past five years.NAB's Islamic financing practice sits within its capital markets team. Lum was previously national product manager for NAB's micro-enterprise loans product and agreed that it would take time to evolve to an institutional landing product from microfinance type deals to let clients purchase fridges etc in Victoria.Offshore funding, predominantly from Malaysia or Saudi, needs to be swapped from local currency into US dollars and then into AUD. "We were getting inquiries asking us if we could do [a similar funding deal] onshore," Lum said."The challenges are obvious: there is [capital gains] tax, getting the sharia board comfortable with the structure, and finding appropriate sharia advisers."Lum asserted that some forms of sharia lending could be organised within the existing banking rules, although at a smaller scale. "Last year we did a [financing] deal for a pharmacy group in Port Macquarie (NSW)." His fellow panellists had bigger and better plans in mind for asset backed lending - very little is done now in agriculture and none in infrastructure, for instance - both areas where it was suggested efforts could be directed. Both these sectors could benefit from the extra funding that might be available under sharia financing arrangements.