Muscat: Oman has paved the way for Islamic banks to start operations with the announcement of a Royal Decree amending the banking law to accommodate Sharia-compliant financial products. The two Islamic banks bank Nizwa and alizz islamic bank and window operations of conventional banks are expected to start within two months from now. The Central Bank of Oman (CBO) may announce the detailed regulation, said a banking source.
"We have all submitted application for starting window operation. Now the central bank can issue licence for us to offer Sharia compliant products. But I don't know the timeframe," said a senior banker. Bank Nizwa is in a much more advanced stage to start operation, with the bank recruiting people and board members.
Market sources said that among conventional banks, Bank Muscat, National Bank of Oman and ahlibank are expected to start operation first as they have spend a lot of time for preparing themselves for offering Sharia-compliant products. Bank Muscat has raised RO100 million, while ahlibank has mopped up RO25 million by way of right issues to start Islamic banking.
Bank Muscat has also announced RO150 million for its Meetaq Islamic banking window. Bank Sohar, another bank planning Islamic banking window operation, is yet to complete its RO10 million rights issue for Islamic banking. The Sharia-compliant financial institutions are expected to capture 10 per cent of the market share of the total banking assets within few years. The banking assets are in the region of $48 billion and are growing at a healthy pace.
Once Islamic banking products are properly rolled out, these institutions may capture up to 10 per cent of the market share in the first few years. Unlike traditional banking, Islamic banks provide the entrepreneur with funds for his business venture and get a return based on a pre-determined profit sharing ratio. Oman is the last country among the six GCC members offering products and services complying with Sharia Law.
It appears that a lot of people, who do not come under the formal banking system, will approach Sharia-complaint institutions for their day-today banking needs. Another major advantage the country can expect now is the flow of foreign direct investment (FDI) as there are a lot of Sharia-sensitive investors in the GCC region. Islamic financial institutions in the region may support Oman's initiatives to develop large scale utility projects like power and desalination plants.