Banking, Finance & Takaful

Oman ahead in regulating Islamic finance, but vibrant capital market missing

going to mutrah35714Experts at the seminar of ‘Developing a sustainable Islamic banking industry in Oman’ have said that the demographic changes in the country will raise demand for credit, and more funds are yet to flow into the market. As the employment level is on the rise, there is a ‘huge potential’ for growth in the financial sector and Islamic banks will need to play an effective role in order to have their share of the cash, they added. The issue of bringing investments and capitalising interest has been highlighted by Sayd Farook, Global Head of Islamic Capital Markets at Thomson Reuters, “We haven’t figured the way forward to ensuring that there is a vibrant capital market that can support financial institutions and at the same time enable Oman to attract investments.”

He has also addressed the issue of treasury and liquidity management, “Oman has taken the step forward when it comes to the regulation of Islamic finance, particularly in liquidity and treasury management. It is by far one of the most advanced countries when it comes to that matter.” According to experts, the lack of a global Islamic capital market, particularly an Islamic interbank market, and the shortage of short-term, long-term, or highly tradable investments which will bring the capital risk, are the main issues concerning the development of Islamic banking. During the panel discussion, Mohammed Nadeem Aslam, Head of Islamic Banking ‘Meethaq’ at Bank Muscat, commented that customers are curious to know how the Sharia law is implemented, and they compare Islamic banking with conventional banking in terms of products offered and prices which creates a challenge.

Sohail Niazi, Chief Islamic Banking Officer at Bank Sohar, stressed on studying the regulations and challenges of Islamic Banking, “We don’t want to wait for five or six years to find out that our regulations are not helping the Islamic banking,” he said. Adding that it is important for the government to have a proper vision for where it wants to see the Islamic banking at after a few years from now. Citing a feasibility study that included 530 individuals in the Sultanate, Shaher Abbas, Co-founder of IFAAS (Islamic Finance Advisory & Assurance Services) and Director of Sharjah Compliance & Product Development, commented: “Although our feasibility study had shown that 85 per cent were interested in Islamic banking, 70 per cent said that they will not join an Islamic bank immediately and will wait for a period of six months to one year, and some of them explained that it all depends on how the bank performs.” He further added that the majority were found not to be willing to pay more than a little as an extra fee for Islamic banking, taking into consideration that the conventional banking is less priced than Islamic banking.

Shaher also added, “I think most of the banks in the Sultanate have set up their Islamic banking windows as a preventive measure to protect their shares in the market, it is neither an aggressive policy nor an expansion. But as Islamic banking is coming to the country, there will definitely be a shake up in the market, so the best strategy, for the short-term at least, is to set up an Islamic banking window for protecting ‘my’ customers.”

Source: Zawya

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