IBA Group Pty Ltd - Islamic Bank Australia - has secured a restricted authorised deposit-taking institution authority from APRA.
Islamic Bank will start rolling out ADI products on a limited basis early next year to a small number of staff and invited members of Australia's Muslim community.
The bank is waiting on its Australian Financial Services Licence and Australian Credit Licence.
For now, the bank has A$10 million in capital via UAE-based conglomerate Abreco, and it is in the process of raising a further $20 million, Dean Gillespie, the bank's chief executive, told Banking Day.
"It's a very different proposition from other neobanks," Gillespie said.
"It's very much a segment-based proposition for Muslim Australians, who cannot bank in line with their faith.
"We hope to transition to a full ADI ASAP," he said. Like all RADIs, IBA has two years to do so.
IBA first applied to APRA for a licence in 2018. The bank is independent of existing Shariah-compliant non-bank financiers serving the same target market.
"It's taken an extended period of time .... we had to educate the regulator on what an Islamic bank looks like," Gillespie said.
"Being Shariah-compliant is critical to everything we do," the bank declares at its website, including most notably an aversion to that most fundamental of conventional banking practices: charging, or paying, interest.
"Whenever we design a new product, we submit its details to our Shariah Committee for approval. The Shariah Committee issues fatwas to confirm that the product is Shariah-compliant," the bank says.
"If we take a term deposit, for example, we will use it for a Shariah-compliant purpose such as home finance, and share the profit with the customer," Gillespie said.
Home finance will be on a 'lease to buy' basis.
The 2021 census found that 3.2 per cent of the Australian population follow the Islamic faith, and it is the fastest growing religious cohort.
Gillespie is a former senior executive of Bankwest and Commonwealth Bank. The chair is Anthony Wamsteker, the founding CEO of ME Bank.