Islamic finance momentum gathers pace in Oman

The Islamic finance industry’s newest market, Oman, may be seeing a flurry of activity with new authorizations in Islamic advisory and Takaful following the recent approvals for the establishment of two Islamic banks, Bank Nizwa and Al-Izz International Bank. But to what extent these developments will help entrench Islamic finance as an important emerging component of Oman’s financial services sector must remain a moot point.

Nevertheless, financial institutions are rolling out their mini manifestos on their planned activities in the Islamic banking space targeted in the sultanate. Swiss private bank, Bank Sarasin, and Alpen Capital LLC (Oman), an investment bank, through their joint venture Sarasin-Alpen LLC, Oman, have received approval form the Capital Market Authority (CMA) of Oman to market sukuk and other Islamic capital market products and services to clients in Oman.

At the same time, Alpen Capital LLC itself has also received an Islamic advisory license from Oman’s CMA to provide advisory services in Islamic structures including in mergers and acquisitions (M&As), debt market instruments, equity products and capital market products including sukuk.

Alpen Capital confirmed that it has successfully closed several Islamic advisory mandates in the region and has arranged Musharaka/Murabaha agreements and advised on the placement of sukuk as well as restructured Islamic syndicated facilities for large conglomerates in the GCC. “Alpen Capital has extensive experience in advising on Islamic Finance deals and we have successfully managed many such transactions in the region. We will use this expertise to provide value added services to our clients in Oman”, says Rohit Walia, executive vice chairman & CEO, Alpen Capital Group.

The CMA has also given a Takaful license in principle to Al-Madina Gulf Insurance, provided the company converts into a publicly-listed company. Al-Madina according to its promoters plans to become a full-fledged Takaful operator providing general and family Takaful products.
However, the biggest impact on the nascent Omani Islamic finance sector may come from BankMuscat, the sultanate’s largest bank by far with assets worth over $15 billion and with a strong presence in Corporate Banking, Retail Banking, Investment Banking, Treasury, Private Banking and Asset Management. Bank Muscat also has the largest reach in Oman with over one million customers and the largest network of 129 branches.

It already offers a limited number of Shariah-compliant structured products and is confident that it can roll off several products as and when required. BankMuscat is also training some 250 staff in Islamic finance through bespoke courses.

BankMuscat is also active in the syndicated Murabaha sector, for instance. The bank, two years ago, even took out a 21.33 percent equity stake in Gulf African Bank (GAB), the first Islamic bank in Kenya. This was done through its associate Bahrain-incorporated BankMuscat International (BMI) Bank BSC in which it has a 49 percent equity stake and which already officers Islamic financial products and services. In fact, Ahmed Mohamed Abdullah Al-Abri, Chief Operating Officer of BankMuscat is a member of the Board of Directors of GAB and BMI Bahrain.

The bank has welcomed the royal directive issued in May this year by Oman’s absolute ruler, Sultan Qaboos, paving the way for the authorization of the country’s first standalone Islamic bank and for other interested banks to set up dedicated Islamic banking windows. It sees this as a major new niche opportunity not only for the bank but also for the Omani financial services sector; and expects demand for Shariah-compliant financial products to increase over the next few years in line with Islamic banking demand dynamics in Saudi Arabia, Kuwait, Bahrain, Qatar and the UAE.

However, it is not clear whether BankMuscat will confine its Islamic banking activities through a dedicated window or whether it may eventually spring off the window by apply for a separate dedicated Islamic banking license.

Following the royal decree on Islamic banking, the Central Bank of Oman issued a landmark circular to all licensed banks operating in the Sultanate regarding Islamic banking. “As licensed banks are aware,” says the circular, “it has been decided to license conduct of Islamic banking in the Sultanate through exclusive Islamic banks and windows of existing licensed banks.”
Considering the process of evolution and stage of Islamic banking in many jurisdictions, consistent with the broad approach generally adopted by the CBO in regulation and supervision and in order to be compliant and at the same time provide reasonable operational flexibility for the development of this new line of business, the circular further outlines the regulator’s approach to Islamic banking under the country’s banking Law.

“The central bank,” says the circular, “deems Islamic banking as one way of doing banking business under the banking law, subject, of course, to the overwhelming requirement of Shariah compliance. It will follow therefore that the provisions, as stated, respectively, in Articles 50 and 52 of the banking law on the use of word of “bank” or “banking” and licensing required from the central bank for doing “banking business” as enumerated in Article 5, shall remain applicable except that Islamic banks and Islamic banking windows, so authorized, shall be Shariah compliant and shall conform to other applicable requirements under the Banking Law and other laws.”

Nevertheless, Oman’s entry to Islamic banking has important implications for the Omani banking sector, the region and beyond. Omani banks that eventually become involved in Islamic banking could be an important bridge between the GCC and countries such as India and East Africa, two regions with which Oman has traditionally had close political, trading and kith and kin links.