MUSCAT — Economist and academic researcher Dr Nasser al Mawali expects that Islamic banks — that are expected to start their activity for the first time in the Sultanate at the beginning of next year — will acquire about 20 per cent of the domestic market of the banking sector in the Sultanate during the next three years.
He pointed out that the rate of growth of the assets of Islamic banks in the Sultanate is expected to range between 15 to 20 per cent annually, which is in line with the global rates. Dr Al Mawali, Assistant Professor in International Economics at SQU and Secretary of Omani Economic Association, said that some commercial banks in the Sultanate are excepted to be transferred to Islamic banks entirely if they get the necessary permits as happened in some neighbouring countries.
He emphasised that the presence of Islamic and traditional banks in the domestic market promotes competition among them and contribute in finding alternatives and multiple options of financing and customer service especially for small businesses that suffer from poor funding.
Dr Al Mawali monitored many challenges Islamic banking faces globally like competition from traditional banks, the shallowness of capital market, limited areas of investment and weaknesses in qualified human resources capable of developing the jurisprudence of transactions.
Dr Al Mawali said the presence of Islamic banks in the Sultanate is a promising opportunity for the growing Omani economy. So His Majesty ordered establishment of Islamic banks as well as allowing commercial banks to open windows in response to the requirements of the current phase of the banking industry and to keep pace with the challenges of globalisation and requirements.
Islamic banks in the Sultanate will have significant added value to the banking sector as it will open up broad prospects for financing that is different from the traditional way, and gives banks the opportunity to offer new tools and products compatible with the Islamic law.
An Islamic bank follows the Islamic law in all the banking transactions that are based on loss and gain. Some may look at Islamic banks as charity associations but in fact they are profit institutions that deal with tools and products compatible to the Islamic law.
The idea of Islamic banks appeared in 1941 in Malaysia when the government issued simple bonds that do not apply interests in its system.
In 1950 fund savings appeared in Pakistan following the same way, and then Dr Ahmed al Najar founded a saving bank in Egypt in 1963 followed by the establishment of Nasir Social Bank, that was founded by the late Egyptian leader Jamal Abdel Nasir, which was intended to help the needy students and others.
During the following years the idea developed to establish the Islamic Development Bank under the guidance of the foreign ministers of Muslim countries in 1974 that aim to finance government development projects in Muslim countries.
The Sultanate has instinctive elements to embrace Islamic banking, if the proper environment was harnessed to this service. The environment is represented in the government, banks and individuals.
The government has the biggest role in creating appropriate legal and regulatory environment to ensure full compliance by all Islamic banks in the Sultanate of the regulations of Islamic banking.
The government has also to ensure that all banks applying the International Islamic Fiqh Academy standards and the standards of the Accounting and Auditing Organisation in financial institutions.
The Islamic banks can overcome fierce competition from traditional banks and they can keep pace with the needs and legitimate financial innovations. The founders of these banks have to believe that the ultimate goal of these banks is to achieve the purposes of the law and not just profit, and these institutions must involve in the global banking system such as Basel 2