As the sultanate gets ready for the introduction of Islamic finance into the market, consulting firm Ernst and Young offered its services by preparing both the finance industry and the public with a seminar titled ‘Introduction to Islamic Banking’.
The seminar, held last week, hosted a panel of experts from the industry, including Ashar Nazim, executive director and head of Islamic Financial Services at Ernst and Young MENA; Sohaib Umar, senior manager of Islamic Financial Services at Ernst and Young, who is also a member of the Centre for Shari’a Compliance in the Central Bank of Bahrain; and Abid Shakeel, head of Islamic finance products at Lloyds UK.
“We have history in the making with Oman’s introduction of Islamic banking. We have the opportunity to get it right, to be a game-changer, and to take Islamic finance to the next level,” said Ashar. “The biggest challenge is how do we ensure a proper understanding among our customers.” At the seminar, the team presented a brief history of Islamic finance, explained the growth of the industry, its key stakeholders and the potential for Oman.
Sohaib, who has been in the industry for 17 years and manages the Central Bank of Bahrain’s Awqaf Fund, explained how the principles of Islamic finance are determined and how it should be regulated.
Regulations that are included typically are free mutual consent, transparency of transactions, and the prohibition of interest, gambling, fraud and deception, although there is no central regulator, so banks do have the autonomy to come up with their own interpretations.
An extremely profitable business, the global Islamic finance industry is currently worth US$1tn, and its clear every bank in Oman is eager to get a slice of it. “It’s a really exciting time for Oman with the introduction of Islamic finance. It’s bringing a lot of opportunities and challenges too,” said Ahmed al Esry, senior tax director at Ernst and Young Oman. “A lot of time should be invested to make sure a structure is in place for Islamic banking to be successful in Oman.”
According to Sohaib, studies conducted in other Muslim countries have shown that the maximum market share for Islamic banks is between 15 and 20 per cent. Other studies have shown that among new customers to Islamic banking, up to 25 per cent have no previous banking experience.
Therefore the race to be the first bank in Oman to introduce Islamic banking is likely to be an aggressive one, as it will expect to receive the initial influx of custom, and attract the majority of the first-time banking customers (those who will only use Islamic banking).
Abid hopes the rush will not risk the quality of the service and that the transition will be smooth. “Every bank wants to launch Islamic banking but they have to think about the long term. It’s an evolving process which shouldn’t be rushed,” he said.