Oman to introduce Islamic Finance this year
06 Jul 2012 09:57 GMT
 
Muscat: The Government of Oman has decided to shape a regulatory framework for Islamic finance as it is willing to make shariah-compliant products available to the public by the end of this year. By Farhan Iqbal

Muscat: The Government of Oman has decided to shape a regulatory framework for Islamic finance as it is willing to make shariah-compliant products available to the public by the end of this year.

It is the stated aim of the country to facilitate its people with Islamic finance this year therefore Oman government has planned to introduce a framework for regulating shariah-compliant products as early as possible.

There may not be quick profits in the begging as the logistical challenges and limited size of the market may not lure investors to the business.

According to the Capital Market Authority officials, Legislation covering Takaful (Islamic insurance) and Sukuk (Islamic fixed income securities) are likely to be finalized by the end of the third quarter of 2012.

The Takaful team leader at the CMA, Ahmed Al Harrafi, informed that approval of the country's first Takaful license will follow soon afterwards, as the regulator has already received three applications for this.

The Senior Director at the CMA, Mohammed Al Abri, commended the efforts of Oman’s central bank saying that this complements efforts by the country's central bank to introduce a law that will supervise Islamic banks; the law is in its final stages of review.

Oman hinted at introducing Islamic finance, partly to prevent outflows of funds to sharia-compliant institutions elsewhere in the Gulf last year even though it insisted for years that its banking industry should be purely conventional.

But the introduction of the regulatory framework may not produce a rapid surge of activity. Many institutions are still grappling with the need to obtain product expertise, arrange oversight by boards of Islamic scholars, train staff and build computer systems.

The Head of Islamic Banking at Oman Arab Bank, Azmat Rafique, commented, “There is an expectations mismatch.”

“On the ground things haven't been finalized...and banks are still gathering teams and systems,” he added.

Last week newly formed Bank Nizwa, the country's first Islamic bank, failed at a shareholders meeting to appoint its board of directors, despite an initial public offer of shares that raised $156 million last month. This could potentially delay its schedule for launching products.

The analysts said that banking competition will become tougher in Oman now. Bank Nizwa obtained its banking license last year along with Al Izz International Bank, another new Islamic institution; they will bring the total number of locally incorporated banks to nine.

According to central bank data, Oman will thus have 19 commercial banks for a population of only about 2.8 million, with the three largest lenders initially accounting for about 60 percent of total banking assets.

Competition will be increased by the fact that conventional banks will be allowed to use Islamic windows to offer shariah-compliant products through their existing branch networks. Bank Muscat, which has Oman's largest branch network of 130 offices, this week joined Bank Sohar and National Bank of Oman in saying it would deliver products this way.

Rafique predicted that 10 percent of existing bank customers in Oman would eventually make the switch to Islamic banks, which would also attract a similar number of people who are currently outside the banking sector because of their religious belief in avoiding interest.


-- Al Arabiya Digital


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