Muscat: Islamic Finance industry is all set to benefit Omani markets as Islamic financial products, first authorized by the Omani government in 2011, are ready to be introduced later this year.
Islamic finance is expected to benefit all sectors in Oman from banking to real estate to insurance. However, competition is also likely to increase as both shariah-compliant and conventional banks compete for customers.
Bank Nizwa, the first bank granted authorization to roll out Islamic financial products, intends to begin operating in the third quarter of 2012. The bank recently raised $156m through an initial public offering (IPO), which will be used to finance the development of new services.
Al Izz Islamic Bank is the second bank to receive authorization to introduce shariah-compliant services and has announced plans for an IPO in September. The float is set to be valued at $104m, representing 40 percent of the bank’s proposed capitalization of $260m.
The introduction of Islamic banking is also having a ripple effect throughout the wider financial sector. There has been strong movement on the Muscat Securities Market (MSM), with a number of banks looking to raise funding to support their entry. With the Central Bank of Oman (CBO) having set a minimum capital requirement of $26m for lenders to open an Islamic banking window, there have been several rights issues on the exchange.
In late July, Bank Muscat staged a $251m rights issue, which attracted bids totaling $321.26m, with the lender confirming in international media that much of the capital raised would be used to back its entry into Islamic banking.
The insurance sector is also set to see benefits, with the Capital Market Authority (CMA), which oversees the industry, looking to introduce a regulatory framework that will allow shariah-compliant insurance (Takaful) firms to operate. In early August, Abdullah bin Salem Al Salmi, the Executive President of the CMA, announced that legislation to pave the way for the launch of Takaful products has been drafted by a team of consultants.
He said, “We are now reviewing this draft and will discuss with the consultants. We have also consulted with other organizations, such as the Islamic Financial Services Board of Malaysia and have received comments on the draft.”
“We hope we will be able to prepare the final draft within a month or so,” he added.
The real estate sector also looks set to join the nascent segment. It is believed the new funding model will improve access to loans and rebuild faith in the property market. Philip Paul, the Head of the Oman branch of international property consultant, Cluttons, said that the property market is a good fit for Islamic banks.
He stated, “In Oman, Islamic finance has the potential to, among other things, help the revival of the domestic real estate sector.”
“This impending resurgence will help investor confidence in the local market, but also accelerate national economic growth as well,” he added.
The CEO of Ahli Bank, Abdul Aziz Al Balushi, said, “There will be tough competition in the mortgage loan business.”“There is going to be a lot of competition for deposits as well. Many people like to park their money without earning interest. So deposits will migrate to Islamic banking and the competition for low-cost deposits is going to be tough,” he said.