Muscat: Islamic Financial services in the Sultanate of Oman are likely to gain boost on the back of the new index for Oman’s stock exchange and it will also pave the way for additional Shariah-compliant products.
In early June, the Muscat Securities Market (MSM) announced that it was close to launching a new index, one for listed companies that operate according to the principles of Shariah, as set down by the Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions.
To be known as the MSM Shariah Index, the benchmark will contain 31 listings. Industrial firms will be the best represented, with 18 companies, followed by 10 from the services sector and three from the financial industry.
This is the inverse of the MSM30, the exchange’s primary index, which is heavily weighted towards banks. The low number of financial firm listings in the new index can, to some degree, be explained by Oman’s late entry into the Shariah-compliant finance field, with authorization for Islamic banking coming only in 2011.
One of the smaller Gulf exchanges, the MSM has a market capitalization of around $30 billion (compared to a GDP of about $72bn), with 165 companies trading on its boards.
To ensure that the companies listed on the MSM Shariah Index continue to comply with Islamic business principles, quarterly reviews of their activities will be conducted, a process aimed at both maintaining standards and promoting confidence in the products being offered to investors.
The index is the latest development in Oman’s Islamic financial services market, which has been in existence since Sultan Qaboos bin Qaboos Al Said issued an enabling royal decree in May 2011. Since then, two new institutions – Bank Nizwa and Al Izz International Bank – have acquired banking licenses, while established conventional lenders have opened Islamic windows.
In 2012 both Nizwa and Al Izz floated initial public offerings (IPOs), in line with the central bank requirement that they list at least 40 percent of their shares. The IPOs were strongly oversubscribed, suggesting an appetite for Islamic products on the MSM.
Shariah-compliant banks are expected to draw in new customers rather win market share from their conventional counterparts. As Hamood bin Sangour bin Hashim Al Zadjali, Executive President of the Central Bank of Oman (CBO), told OBG in 2012, “The CBO ... believes that the advent of Islamic banking in Oman will complement existing conventional banking, augment financial inclusion and promote growth in the economy for years to come.”
According to Pradeep Asrani, MD of investment services firm Gulf Baader Capital Markets, Islamic banks will capture a market share of up to 5 percent within two years, which in turn could promote further expansion into Shariah-compliant investment funds and brokerages, as well as sukuk.
More generally, the availability of Islamic banking and other financial services is expected to act as a spur to the market and to the economy as a whole. In 2012, Ahmed bin Saleh Al Marhoon, the MSM’s DG, told OBG that the introduction of Islamic banking would inject more liquidity into local capital markets as individuals seeking Shariah-compliant investment options would no longer have to look abroad. The new MSM Shariah Index will provide one more reason for these investors to place their funds locally.