Islamic banking regulation expected at any time: CBO

The much-awaited regulation for Islamic banks and window operations of conventional banks will be announced through a Royal Decree at any time.

"It can come at any time. The Majlis A'Shura and Cabinet have already cleared the new regulation and now we are waiting for a Royal Decree, which can come at any time,- Central Bank of Oman Executive President Hamoud Sangour Al Zadjali, told Times of Oman over phone. It appears that the Royal Decree is for amending certain clauses to incorporate Islamic banking business.

In fact, Bank Nizwa -” the first Islamic bank in the country -” and several other conventional banks are ready for starting Islamic banking business. Bank Nizwa, which has a paid-up capital of RO150 million, has been ready with its key officials for starting its operations, while alizz islamic bank is raising RO40 million from investors for forming the bank.

Among conventional banks, bank muscat, ahlibank, Bank Sohar and National Bank of Oman are expected to be the first ones to enter the market with their Islamic banking products. 

ahli bank is fully geared up start window operations through four branches. "We are 100 per cent ready for starting window operations. We have our Sharia board, accounting and auditing standards and risk management are in place and have already recruited staff. Also, we have established core banking system and devised Islamic banking products,- Abdul Aziz Al Balushi, CEO of ahlibank, told Times of Oman. 

A five-member Sharia board, exclusive branches for window operation, clear cut segregation of conventional and Islamic banking with separate teams of people and accounts and a 12 per cent capital adequacy ratio were the main highlights of the Islamic Banking Draft Framework (IBRF), when it was prepared by international audit firm Ernst and Young. Ernst & Young advised the Central Bank of Oman for framing the set of new regulation.

However, top-level officials in the banking sector are not clear whether the banking regulator has made changes in the draft report, after receiving their feedbacks. "We are waiting for the regulation to come for allocating funds for Islamic banking window operation,- added Al Balushi. The bank would like to see the capital requirement for different types of Islamic banking products for taking a final decision on allocating capital. ahlibank recently mobilised RO25 million through a rights issue, which took the paid up capital to RO120 million. 

"We are prepared for starting window operations,- added Dr. Mohammed Abdulazz Kalmoor, chief executive officer of Bank Sohar. The bank is looking at opening five exclusive branches -” two in capital area and three in interior regions -” for offering Islamic banking services. Like other commercial banks, Bank Sohar has done enormous amount of work in terms of ground work for launching Islamic banking services. 

According to the draft Islamic banking framework, of the Sharia board, three should be experienced Islamic scholars and two should be from relevant field, either a professional in Islamic law or Islamic accounting. 

CBO's draft regulation also stipulated on separate branches for Islamic banking window operation of conventional banks. The draft regulation also insisted on a 12 per cent capital adequacy, with a minimum paid up capital of RO10 million for starting window operations.

Another major suggestion for window operation is that funds can be pumped into Islamic line of business by a conventional parent bank, but Islamic banking operation can not transfer money for using it in conventional banking.

http://www.timesofoman.com/innercat.aspx?detail=12223

Role of professional real estate firms in Islamic banking

In the region there have been challenges to Islamic banking due to the slump in real estate, however, advocates say the system has built- in protection when compared with the conventional financial institutions as excessive risk taking is banned

The decision to licence the operation of Islamic banking in the Sultanate has opened up windows of opportunities for the banking sector in Oman. The successful launch of “Bank Nizwa”, an exclusive Islamic bank and the opening of Islamic banking operations windows within conventional banks is evidence that the banks plan to capitalize on the opportunities presented by the new industry and meeting the increasing demand for Sharia-compliant finance.

Over the past two decades, Islamic finance has burgeoned into a $1 trillion global industry that, among other things, has served as a vital source of funding for real estate projects and developments around the world.  Several modes of Islamic financing have been developed based on the primary tenet of Islamic financial intermediation that mandates the sharing of risk between the lender and the borrower.

Islamic banks have focused on real estate because it fits with Islamic principles, which require an underlying physical asset in all transactions. Many other investment classes are also off-bounds due to prohibition on gambling and interest.

Some institutions have relied heavily on real estate as the primary business model, investing in real estate, developing real estate and lending to activity around real estate. The real estate investment and finance products could involve the purchase of land, buying and selling, build and sell, build and lease and re-development.

In Oman, Islamic finance has the potential to, among other things, help the revival of the domestic real estate sector. This impending resurgence will help investor confidence in the local market and accelerate national economic growth as well.

In the region there have been challenges to Islamic banking due to the slump in real estate. However, advocates say the system has built- in protection when compared to the conventional financial institutions as excessive risk taking is banned. In addition to the market risks there are areas such as competencies and expertise to supervise risks effectively.

Islamic commercial banks have been conservative in lending and collateral valuations. Investors are being very cautious and asset prices are going down, so it is more challenging. The challenges are in identifying the quality of asset, asset price risk, rate of return risk, displaced commercial risk and equity investment risk.

The bank’s exposure for Islamic banks typically takes the form of a profit sharing contract; whereby the Islamic bank puts its own money at risk in the form, effectively, of an equity stake. The bank’s exposure depends on both the skill and honesty of its partner.

This potent mix of high risk and moral hazard is an area which needs greater scrutiny. In fact, as the real estate assets which banks are financing continue to be owned by their clients, much Islamic bank exposure to real estate risk may not appear on the sector’s balance sheets.

An experienced property management firm such as Cluttons has in-depth knowledge and experience to assist with critical risk management activities on individual opportunities such as condition surveys, purchase reports, valuations, and appraisals as well as strategic guidance on market opportunities and determinants of value of real estate income for investment decisions.

by Philip Paul, Head of Agency, Cluttons Oman

http://www.kippreport.com/2012/08/role-of-professional-real-estate-firms-in-islamic-banking/

Islamic banking carries huge opportunities for Oman

The decision to licence the operation of the Islamic banking in the Sultanate has opened up windows of opportunities for the banking sector in Oman, according to Philip Paul, Head of Agency, Cluttons Oman.

The successful launch of Bank Nizwa, an exclusive Islamic bank and the opening ofIslamic banking operations windows within conventional banks is evidence that the banks plan to capitalize on the opportunities presented by the new industry and meeting the increasing demand for Sharia-compliant finance.

Over the past two decades Islamic finance has burgeoned into a $1 trillion global industry that, among other things, has served as a vital source of funding for real estate projects and developments around the world. Several modes of Islamic financing have been developed based on the primary tenet of Islamic financial intermediation that mandates the sharing of risk between the lender and the borrower.

Islamic banks have focused on real estate because it fits with Islamic principles, which require an underlying physical asset in all transactions. Many other investment classes are also off-bounds due to prohibition on gambling and interest.

Some institutions have relied heavily on real estate as the primary business model, investing in real estate, developing real estate and lending to activity around real estate. The real estate investment and finance products could involve purchase of land, buying and selling, build and sell, build and lease, and redevelopment.

In Oman, Islamic finance has the potential to, among other things, help the revival of the domestic real estate sector. This impending resurgence will help investor confidence in the local market, but also accelerate national economic growth as well.

In the region there have been challenges to Islamic banking due to the slump in real estate, however, advocates say the system has built- in protection when compared with the conventional financial institutions as excessive risk taking is banned. In addition to the market risks there are areas such as competencies and expertise to supervise risks effectively.

Islamic commercial banks have been conservative in lending and collateral valuations. Investors are being very cautious and asset prices are going down, so it is more challenging. The challenges are in identifying the quality of asset, asset price risk, rate of return risk, displaced commercial risk and equity investment risk.

The bank’s exposure for Islamic banks typically takes the form of a profit sharing contract; whereby the Islamic bank puts its own money at risk in the form, effectively, of an equity stake. The bank’s exposure depends on both the skill and honesty of its partner.

This potent mix of high risk and moral hazard is an area which needs greater scrutiny, in fact. As the real estate assets which banks are financing continue to be owned by their clients, much Islamic bank exposure to real estate risk may not appear on the sectors balance sheets.

http://www.twentyfoursevennews.com/banking-finance/islamic-banking/islamic-banking-carries-huge-opportunities-for-oman/

Risk management

The first session of the second day of the Oman Islamic Banking and Finance Conference 2012 saw experienced speakers touch upon issues of a slightly different nature, related to Islamic Banking.

Jamsheed Hamza, Senior Manager-Branch Network Expansion in the Islamic Banking Division, Bank Dhofar, spoke on the topic, ‘Customer Care and Understanding: Key to success Islamic Banking’.

He said: “How do we care for our customers? Your clients will stay with you if you can PRAISE them. PRAISE stands for Purpose, Relationship building, Appreciation, Intelligence, Service and Empathy. You need to understand the purpose of the customers coming to you.

If the customer is coming to the bank with a Halal need, the bank must genuinely take it upon itself to meet their needs. A bank is not here to sell but to develop awareness and build relationships.

By focusing on relationships you can turn a dynamic customer into a delightful customer, where one must invest in long term relationship building. You need to appreciate your customers.”

He urged Islamic bankers to “go the extra mile” in appreciating the client’s success and helping him make appreciative investment choices. “Apply your intelligence by educating your clients and developing awareness. Ask the question WHY?

Every decision based on the question WHY that we make in our lives, is attached to an emotion. You must serve your customers. Give your customers perfection, inculcate an attitude to serve and you will generate loyalty.

Empathise with your customers. Think in the shoes of your customers and you will win their trust and loyalty. Remember in short to always PRAISE your customers,” he said.

Arsalan Ahmed Qureshi, AVP - Senior. Manager, Operational Risk-Risk Management Department, Al Baraka Islamic Bank, spoke on ‘Operational Risk Management Strategies and Best practices in Islamic Banking’.

He said: “The principles of Islamic Banking are based on Prohibition of dealing with interest — Riba, Clearing of Financial Contracts from contractual uncertainty — Gharar, Exclusion of gambling (Maysir) in any financial activity, Non-Origination of profit from Haram economic and financial activities, reference of a Financial Transaction to a tangible, identifiable underlying asset and sharing of risks and rewards by all parties to a financial transaction.”

Banks, he explained, face a number of risks – Business, Financial, Event and Operational risks. “Risks specific to Islamic banks are Commodities and inventory risk, Rate of return risks, Sharia non-compliance risk, Equality position risk and Displaced commercial risk. Operational risks include Shariah compliance risk, fiduciary risk, people risk, technology risk and legal risk.

In short people, processes, systems and external events may trigger Operational risks. The reasons could be fraud, trade, input error, system failure etc.

The consequences could be Monetary Loss, and Reputation damage.”

Qureshi listed two approaches for assessing operational risks: Top-Down Approach which takes the product into consideration, and the Bottom-Down Approach which takes events into consideration.

“Nowadays banks use a combination of both these approaches. Operational Risk Management Framework compromises of a governance structure, Operational Risk Guiding Principles and Role & Responsibilities of Operational Risk Management Function and Business Units. 

To overcome operational risks we should have strong corporate governance and strong operational policies and mitigation and downsizing through each and every part of the organization.

Any operational tool kit program should consist of a Risk Register, Internal Loss Database, External Loss Database, KRI-Key Risk Indicators, RCSA-Risk Control Self Assessment and Risk Mitigation programme,” he added.

http://main.omanobserver.om/node/98111

ISLAMIC BANKING NEEDS LIQUIDITY MANAGEMENT TOOLS: EXPERTS

Islamic banks and windows will face the need for Sharia-compliant liquidity management instruments as their services are rolled out across the country.

This was highlighted by experts at a workshop on Islamic Liquidity Management and Capital Market hosted by BankMuscat's Meethaq Islamic Banking, in association with International Islamic Financial Market (IIFM), at the BankMuscat head office on Saturday.

Speaking at the opening ceremony, BankMuscat CEO AbdulRazak Ali Issa, stressed the need of Islamic liquidity management instruments. He said, A strong capital base must be supplemented by strong liquidity management tools. Islamic liquidity and Islamic capital markets are important for a resilient and sustainable Islamic finance system.

Inter-bank market and debt instruments like certificates of deposits (CDs) and development bonds are available to conventional banks in Oman, but options for managing liquidity risks inthe Islamic banking sector have yet to be revealed.

Speaking to reporters on the sidelines of the workshop, H E Hamood Sangour al Zadjali, executive president of the Central Bank of Oman (CBO), said that Islamic banks and windows need to be creative and innovative to ensure liquidity management tools are in line with Sharia requirements.

When asked whether CBO has plans to create new instruments and develop policy tools for liquidity risk management in the Islamic banking sector, he said, We will be thinking about it, and will see what can be done to make Islamic liquidity management instruments available to banks. Currently, there are no Islamic liquidity tools available in Oman, but perhaps in the future there will be some sukuk issuance through the government.

Zadjali added that CBO will issue licences to Islamic banks and windows to start operations once the banking law is amended. Once the legislative decree for the banking law amendment is issued, the roll out of Islamic banking will start. We hope that Bank Nizwa would be able to start operations by August.

http://www.muscatdaily.com

Winds of change

It is almost a year since the Royal Decree paved the way for the creation of Islamic banks in the sultanate and the Central Bank of Oman (CBO) is in the final stages of putting down the final set of regulations. Bank Nizwa, the first dedicated Islamic bank in Oman, has unveiled its logo and says it plans to start operations in July. BankMuscat and Ahli Bank have already announced the setting up of Islamic windows – Meethaq and Al Hilal respectively – which will be operational once approval from the Central Bank of Oman (CBO) comes through and the regulatory framework is in place.

Meanwhile BankDhofar has appointed Deloitte and Touche for a market assessment and feasibility study and Bank Sohar has entered into an agreement with Dar al Shariah Legal & Financial Consultancy of Dubai, a subsidiary of Dubai Islamic Bank, to help it with launching its Islamic banking window. Both Oman Arab Bank and National Bank of Oman too have expressed their intent to foray into Islamic banking.

 Bankers expect Islamic banking products and services to debut by June this year in the market. The initial draft of the proposed guidelines by CBO was presented to the banks in the beginning of the year and bankers say the Omani model incorporates best practices from the GCC and Malaysia, customising them to suit the local market. But some rue that the 15 per cent limit (of the Islamic window capital base) stipulated for a single borrower may not be adequate to meet the requirements of some clients. “We have some concerns on the proposed regulatory ratios to operate Islamic banking windows. 

Since the assigned capital for Islamic banking window is in addition to the minimum capital requirements for the existing conventional banking operation, we are of the view that the total capital base of the legal entity should be considered for the computation of various regulatory ratios, including single borrower limit and the capital adequacy,” says Abdullah al Jabri, deputy general manager, head of central operations, Ahli Bank.

As of now, apart from dedicated Islamic banks Bank Nizwa and Al Izz International that are yet to start operations, and Sarasin-Alpen Oman that won a licence to offer Islamic products, the conventional players are yet to get their licences for their Islamic banking windows. “At this point banks just want clear regulations from CBO before one can start offering Islamic banking services and expedite the licencing processes,” says Mohammed Redha Ahmed Jawad, general manager, wholesale banking, Bank Dhofar.

With CBO advising banks to put in place the right systems before licences can be awarded, Ahli Bank and BankMuscat have already set up their internal Shariah boards comprising at least three members. Both have at least one Omani Shariah scholar on their team. The other members are selected from various countries in the Middle East. 

“This helps us benefit from their years of expertise in the other regions along with the local insights that will help address Oman specific matters. With the support of our strategic partner Ahli United Bank, Bahrain, we are well prepared and geared up to rollout Shariah compliant products and services,” says al Jabri.

Some in the industry predict that a successful marketing strategy will not just aid the Islamic banking sector in gaining up to US$6-8bn in assets over the first five years, but may also affect conventional banking in some ways. “By 2015, 60 per cent of assets will be Islamic, so over a period there will be a shift from conventional banking to Islamic banking. Islamic banking is on a growth mode in almost all the Islamic countries,” says Sulaiman al Harthy, group general manager, Islamic Banking, BankMuscat.  

But Ahmed al Rawahi, chairman of the founding committee of Bank Nizwa says it is too early to speculate if conventional banking will face any sort of decline due to Islamic banking activities. “Conventional banks can benefit from establishing Islamic windows. It is good that many of them are establishing Islamic windows as it is good for the market and the country. It will raise public awareness about Islamic banking and help share knowledge on the subject,” says al Rawahi.

Companies in other industries may start altering their business models to become more Shariah compliant. “It has been noticed that companies in the other parts of GCC that converted their business models to Islam have experienced an increase in their valuation by anywhere between 18-25 per cent,” says Fares Mourad, head of Islamic Finance, Bank Sarasin.

Systems in place

To ensure watertight Islamic banking regulations, CBO has examined the evolution and practices of Islamic banking in some major jurisdictions and studied how the challenges arising from a new system in banking were tackled. 

“Our team has worked with external consultants to evolve a draft framework and the same is being subjected to consultative process with the banking sector as well as relevant professionals,” says a CBO spokesperson. Simultaneously, CBO is working on further facilitations that may be made on the legal and operational side, considering that Islamic banking is in some ways different from conventional banking.

Bank executives point out that certain regulations like the establishment of an independent and separate Islamic window and setting up of standalone Islamic branches to ensure segregation of funds are unique to Oman. 

“The Malaysian and Pakistani central banks tried to introduce relaxed window models but couldn’t ensure Shariah authenticity, while CBO has managed to devise a trustful and viable window model. It will help to enhance the public’s confidence in Islamic products. A customer service representative entertaining customers in a regular branch will not be able to justify the requirements of Islamic and conventional banking as both demand a different set of mindset and skills. 

We have experienced such kind of problems in the region, so in this regard we really appreciate what CBO has done,” says al Harthy. He adds that CBO’s move to ban all controversial Islamic products (a first ever regulation in the realm of Islamic banking) like the commodity murabaha (buying and selling commodity for financing purpose) in the Oman market is also a step in the right direction as it will help foster public confidence in a relatively conservative market.

It has also been the first time in the GCC that the initiative for Islamic banking has arisen from the central bank itself instead of local banks first requesting for such services. But Alun Williams, an independent consultant in Islamic Banking in the sultanate points out that the rules for the existing commercial banks opening up an Islamic window are likely to be slightly different from those being developed for dedicated Islamic banks coming up in the country. 

“However, both Islamic windows and dedicated Islamic banks will still be required to conform to common Islamic banking standards, such as those issued by Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), the international Islamic finance governing body,” says Williams. Bankers say that the Islamic products that will be sold in Oman will not differ markedly from that in the other countries. BankMuscat is looking to introduce full range of Islamic products for consumer, corporate and investment customers, while Ahli Bank is periodically consulting with its experts at its headquarters in Bahrain to introduce similar products. 

Meanwhile, Sarasin Alpen is looking to assist its clients in areas such as state and succession planning and Islamic financial planning, apart from offering regular Islamic products. “The advisory services of Sarasin Alpen in Oman are tailored to meet the clients’ requirements and we will use our existing expertise in Islamic wealth management to add value as long as it is within the scope of our licence,” says Mourad.

Evolving landscapes

The introduction of Islamic banking is by no means a simple addition of another investment tool in the market, but such services will alter the landscape of Oman’s banking industry, say bankers. However, the biggest challenge in the successful implementation of Islamic banking in Oman lies in adopting the right marketing strategy to increase awareness. Organisations such as Sarasin Alpen are adopting the word of mouth marketing approach while others like BankMuscat are stepping up their road shows as well as media presence to increase awareness within society.  

“Training of competent staff is a challenge. People who don’t know about Islamic banking will not be able to hire the right people as worldwide in this industry, resources are short and people need time to build expertise,” points out Mourad. While the banks adopting Islamic windows have managed to find at least one Omani Shariah scholar to join their board, executives admit that there is a dearth of Shariah scholars worldwide and Oman is no exception. “Oman has credible Shariah scholars who will be able to advise and assist institutions to formulate their Shariah advisory units. Shariah scholars around the world work very closely to standardise fatwas and Shariah rulings. 

In that context, we believe that Omani Shariah scholars will partner with other Shariah scholars from both the region and international scene. Government support is key to the success of the industry,” says Hatim el-Tahir, director of the Islamic Finance Knowledge Center at Deloitte & Touche (ME). He feels Islamic finance will have a fair share of government’s fund-raising needs and contribute to the overall GDP of the economy.

Al Harthy says an IFAAS study has estimated that the demand for Islamic banking is good with around 86 per cent of Omanis now seeking such services. The cascading effect of the success of Islamic banking in Oman is immense on the banking assets on the whole, as Oman vies for a piece of the pie of this US$20bn industry.

Ernst & Young estimates that Islamic banks in Oman may gain up to US$6-8bn in Islamic assets over first five years.

“We expect Islamic finance to capture up to ten per cent of the market in the next few years,” says Ashar M Nazim, MENA leader, Islamic Financial Services, Ernst & Young. “The first year would be really challenging but the moment the Islamic banking community is able to communicate the message in the right way to people, you will see a big shift in business. Islamic finance will help to encourage productive purpose-based financing in the society rather than consumptive loans. The banking sector is integrated with other industries, hence it will aid the growth of other industries too,” says al Harthy.

While the effect of Islamic banking will be slowly felt on the conventional banking side, Mourad points that the ultimate benefit is for the clients. “Islamic finance is going to increase the pressure on Oman’s conventional banks to revaluate their business models, products and service offerings. We are not just talking about banking but also on the insurance sector which will eventually evaluate their business models too which will result in optimisation in both cases,” says Mourad.

Companies in other industries too might slowly start adopting a Shariah model that will help attract more foreign investments, executives point out. The prolonged wait to introduce Islamic banking in the sultanate seems to imply that enough groundwork has been done and carefully thought out processes have been adopted to make the concept a remarkable success in the region, taking the industry to new heights in the coming years.  of assets will be Islamic, so over a period there will be a shift from conventional banking to Islamic banking. Islamic banking is on a growth mode in almost all the Islamic countries, says al Harthy, group general manager, Islamic Banking, BankMuscat

http://www.businesstoday.co.om

GCC urged to follow unified Islamic finance regulations

The Gulf Co-operation Council (GCC) should have a unified rule under one regulator for Islamic investment products for ensuring lower cost of funds, according to Islamic Wealth Management (IWM) Report 2012.
“The GCC countries could take a leadership role by establishing standards for the registration of Islamic investment products with one regulator,” the Bank Sarasin report said.

The report was launched by Bank Sarasin managing director and head of Islamic Finance Fares Mourad and Monzer Kahf, a leading Islamic finance scholar.

Such unified rule would allow asset managers to market the product to clients across the region, it said.

Currently any offering needs to comply with different regulations in Bahrain, Kuwait, Saudi Arabia, Oman, Qatar and the UAE, resulting in a lengthy and expensive registration process, the report said. “Reducing expenses and increasing the availability would increase competition, benefiting local investors and further the GCC’s development as a centre of excellence for Islamic finance.”

Although unified rules could be done either a state, region or Arab league level, it would be better to have a centralised agency that could interpret the legislations regarding Shariah investments, Mourad said.

Asked whether there was a need for a separate entity for the regulation and supervision of Islamic investments and products, he said “I really would like to have this” but it was for the regulators in the respective jurisdictions to decide.

Kahf said the Islamic Financial Services Board could take the lead in the centralised agency as it consisted of central bankers in the Muslim countries. “Once you have such an agency, there is no need for separate Shariah boards as lawyers specialised in the field could suffix its role,” he added.

The report also took note of the constant criticism of certain Islamic finance structures such as the ‘Tawarruq’, which involves purchasing a commodity with deferred payment and selling it to a third party for cash, hence replicating the effect of a loan.

“Regulations need to be adjusted to allow financial institutions to engineer products that fit the spirit of Islam while meeting legal and regulatory requirement,” it said.

In this regard, the report cited an example of recent co-operation between the halal industry (mostly foodstuffs) and Islamic finance – two sectors with similar goals that have had little contacts.

With issues related to the environment and social practices as well as corporate governance getting more attention, it said there has been more reporting on corporate social responsibility, which is important to Islamic finance.

“There is still much room for improvement with higher standards and a more strategic approach required at the state, company and private level. The Muslim countries face the greatest challenges,” the report said.


http://www.gulf-times.com

IDB ready to fund Oman's Islamic banking sector, public-private business ventures

Islamic Development Bank (IDB), an international financial institution based in Jeddah, Saudi Arabia, is ready to provide equity capital to Oman's upcoming Islamic banking industry, development projects in the sultanate and private-sector businesses.

IDB provides equity capital and loans for projects and enterprises in accordance with Sharia law, besides providing financial assistance to member countries for economic and social development.

Speaking to Muscat Daily on the sidelines of the Islamic Finance and Banking Conference, Dr Ahmed Mohammad Ali, IDB president and chairman of the board of executive directors, said the bank is willing to provide capital assistance in Oman.

He said, "We are at the disposal of both authorities and institutions to provide assistance in Oman. IDB has, from the start, been supporting the establishment of Islamic banks and financial institutions through equity participation.

"The option is open and depends on the needs of the industry, authorities and founders of Islamic banks in Oman. We are ready to provide equity capital to banks which are making a foray into Islamic banking."

IDB, Dr Ali added, wishes to increasingly support development projects under Oman's Eighth Five-Year Plan. "We will be happy to participate in development projects in different sectors, but all depends on the desire of the Oman government and institutions."

Dr Ali said the Islamic Corporation for the Development of the Private Sector (ICD), the private-sector arm of IDB, is also looking to support Oman's private-sector enterprises.

He said, "We are also ready to provide financing to private-sector enterprises. ICD would be willing to participate to support private sector enterprises in terms of equity capital.

"The CEO of ICD was in Oman recently and had discussions with local businessmen and we hope something will materialise in this direction in the near future. Oman is a founding member of IDB and has always been supportive to its activities."

The present membership of the bank consists of 56 countries. The basic condition for membership of IDB is that the prospective member country should be a member of Organisation of the Islamic Cooperation.

© Muscat Daily 2012

Significance of Islamic economy highlighted - Oman

Shaikh Saleh Kamil (pictured), Head of the United Chambers of Commerce, Gulf Region, delivered a speech at the Oman Chamber of Commerce and Industry (OCCI) yesterday on Islamic Economy and its significance in the present crises-ridden world.

The audience appreciated his thought-provoking comments on the various aspects of Islamic economy that prevent many ills that plague many economies today.

On the issue of Zakat he says it is one of “my concerns for many years. Zakat can be the key tool for the economic and social growth. But alas! The Islamic nation (ie 57 Muslims nations) is yet to do a lot to realise the potential role of the developmental Zakat. Allah the Exalted says in his Holy Book “Success is really attained by the believers who are performers of Zakah, Shaikh Kamil reminded.

He added that Zakat has been made obligatory on Muslims for an honourable wisdom, since if the individual saves money, he will pay 2.5 per cent as Zakat. But if he invests it in business he will pay less, and if he invests it in agricultural project, he will pay less, and if he invests it in industrial project he will pay less and less. The more people benefit from your business, the less Zakat you pay and the more reward you gain, since it will lead to opening the doors of livelihood for a lot and moving the wheel of the production of the Islamic economy. This is the true meaning of (performers of Zakah).

Zakah is just one aspect of Islamic economy that helps prevent poverty, and takes care of widows, orphans and other needy people by way of training and employment. He also stressed the importance of a permanent co-ordination between the chambers of commerce among 57 Islamic states especially in light of the global financial crisis.

Shaikh Kamel was born in Taif, Saudi Arabia in 1941. He grew up in the Holy City of Mecca where he had his elementary education. After graduation from the Faculty of Commerce, Riyadh University, he worked at the Saudi Ministry of Finance and later established his own business “Dallah Establishment” in the early sixties, and by early eighties he established the huge conglomerate company “Al Baraka Investment & Development” a holding company for many Islamic Banks and financial institutions operating according to Islamic teachings in various diversified business activities all over the world.

Shaikh Kamel is well recognised as one of the pioneer personalities in the field of Islamic Banking and Finance, while his companies are known as pioneers in many business adventures throughout the region.

http://main.omanobserver.om

Islamic bank rules by month-end: CBO

A new set of rules and regulations for Islamic banks will be ready by the end of this month, said a top-level official of the Central Bank of Oman (CBO) here on Sunday. 

The banking regulator in September appointed an international audit firm, Ernst & Young, to advise the apex bank on formulating a separate set of rules for Islamic banking in the country. 

“We are in the process of preparing a rule book for Islamic banks. This is expected to be completed by the end of this year,” Hamoud bin Sangour Al Zadjali, executive president of the Central Bank of Oman told Times of Oman on the sidelines of a seminar on accounting and auditing in the Gulf region. 

Ernst & Young is looking into aspects like fixing of lending limits, single borrower limit, writing of rule books, procedures for reporting structure for Islamic banks and formation of Sharia board. “I don’t think there will be a national Sharia board. 

However, we will be asking each institution intending to offer Islamic banking products to have its own Sharia board to ensure that the transactions of Islamic banks are in line with Sharia requirements,” the CBO chief added, when asked whether there will be a common nation-wide board to regulate Sharia compliant institutions. 

Since Islamic banks do not offer interest, the consultant is also studying issues like how to compensate depositors, and how to ensure a clear demarcation between traditional banking and Islamic banking for those institutions that offer Sharia compliant products throughwindow operation. 

Sangour said the banking regulator will try to take the best aspects of Islamic banking rules followed by different countries across the world. The consultant is looking into the experiences and drawbacks of certain regulations in other countries. “We will ensure that the banks will follow Sharia rules in letter and spirit.” 

Islamic banking windows 
Responding to a question on the interest among commercial banks in starting window operations, the central bank chief said; “We expect that most of the banks will go for Islamic banking windows.” 

He ruled out the possibility of allowing a third Islamic bank, which was reported by a section of the media. “We are not allowing more than two dedicated Islamic banks for the time being. We expect these banks to commence operation either by the first quarter or by mid-2012.” 

The proposed two Islamic banks and conventional financial institutions that plan to offer Islamic products through window operation may capture 8 per cent to 10 per cent of the market share of the country’s $40-$42 billion banking assets in four to five years time. 

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. 

In fact, Islamic finance in the Gulf region is thriving in recent years. PricewaterhouseCoopers, in a recent report, said the $1 trillion Islamic finance industry was expected to grow by between 15 to 20 per cent per year going forward. 

Referring to the liquidity position within the financial system, he said banks are flush with funds and are waiting for feasible projects to extend lending. 

Sangour also expects Omani banks to maintain its profit at last year’s level. “Banks may achieve a five per cent to 10 per cent growth in net profit this year.” 


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Oman readying itself to welcome Islamic banking

Since Islamic banking and finance has become a reality in Oman following the Royal Directive, authorities have rushed to take necessary steps to establish a regulatory atmosphere for sharia compliant banking and investment.

The Central Bank of Oman (CBO) is following up to pave the way for Islamic banking's debut in Oman early next year and has already given the nod for establishment of two full-fledged Islamic banks, namely Bank Nizwa and Al Izz International Bank. Currently, commercial banks in Oman are in process to open the doors to Islamic banking services.

H E Hamoud Sangour al Zadjali, the executive president of CBO, has stressed on the necessity to make Islamic banking separate from funds, transactions, accounting and regulatory requirements and other financial requirements of the conventional banking system. "Banks are required to establish separate divisions for Islamic banking.

All the banks will have to ensure that conventional and Islamic assets and liabilities are not mixed up. It is important to ensure that Islamic financial activities are fully compliant with Sharia laws in Oman."Experts say that high demand is expected for Islamic banking services and products in Oman, as in the past many Omani individuals, banks and companies have acquired Islamic finance services in neighbouring countries. The hope is that once Oman has a home-grown Islamic banking sector, most of Omani-originated Islamic funds would be repatriated.

Apart from a Sharia compliant banking system, the Capital Market Authority (CMA) is working to set up a regulatory framework for other Islamic products like takaful (Islamic insurance) and sukuk (Islamic bonds).

CMA has already granted first takaful licence to Al Madina Gulf Insurance Company recently.  As an alternative to conventional financing, CMA will soon allow companies to issue sukuk to raise funds in the local market.

According to Ahmed Saleh al Marhoon, director general of Muscat Securities Market (MSM), sukuk are likely to be more acceptable to Omani companies than conventional bonds for raising funds.

"A few companies have approached CMA and evinced interest in issuing sukuk. There are also a lot of investors in Oman who want to invest in sukuk and are waiting for the opportunity. The government also could choose to finance its projects through sukuk issuance."

He added that CMA is preparing the ground for takaful and sukuk products and has sent teams to Malaysia and  Bahrain to study how the markets for Islamic products work.

"The launch of new products like sukuk will follow the launch of Islamic banking here. We are educating ourselves and preparing the necessary regulatory infrastructure to supervise these products."

© Muscat Daily 2011

Raising awareness on Islamic banking

BankMuscat will host a seminar on Islamic banking tomorrow at Grand Hyatt Muscat, it was declared at a press conference yesterday. The seminar, which is designed to raise awareness on customer benefits derived from Islamic banking, will be addressed by Shaikh Ibrahim bin Nassor al Sawafi and Shaikh Azan al Amri, researchers at Ifta’a office, Ministry of Awqaf and Religious Affairs.

In his briefing Al Sawafi highlighted the significance of the seminar in enlightening the community about the differences and similarities between the conventional and Islamic kind of banking. “Discussions will also explore home financing through the musharakah mutanaqadha contracts — a contract of partnership between two parties, whereby one of the parties buys the entire property and the other repays in instalments until all dues are cleared.

The seminar will also look into aspects of Islamic bonds, an assortment of services that could be shared between both types of banking structures and many issues that govern the Islamic type of banking, among others”, remarked Al Sawafi. Also speaking on the occasion, Sulaiman bin Hamad al Harthy, Group Deputy General Manager, Consumer Banking, said: “BankMuscat strives to increase the range of benefits for customers and we are confident that the Islamic banking seminar will shed light on important aspects of Islamic banking from the Shariah perspective.”

As a follow-up measure, the bank will organise a series of presentations on Islamic banking across the Sultanate, highlighting the difference between Islamic banking and conventional banking. The presentations will familiarise people with the main characteristics of Islamic finance. Experts and scholars will make presentations and educate the public on the features and benefits of Islamic banking.

The CBO has initiated steps to incorporate Islamic banking legislation into the banking law and thereby form a legal framework for Islamic banks and Islamic banking branches in line with the best international practices. “Since Islam is the religion of the Sultanate of Oman as stated in the Basic Law, Oman is ideally placed to play a leading role in Islamic finance. Omani commercial codes are completely supportive to Islamic banking structure without any conflict. The commercial code has a very strong Sharia foundation in the form of Article 2, 4 and 5 of Royal Decree 55/1990”, affirmed Al Harthy.

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‘Learn from others on Islamic banking' - Oman

Panel of international Islamic finance experts yesterday said Oman’s banking and finance sector can learn from other countries’ experiences in Islamic banking, which is a new field here. 

Hatim Tahir: Deloitte

At a seminar hosted by Deloitte at the Intercontinental Hotel, the experts gave advice to local members of the finance industry on way of implementing Sharia-compliant banking in the Sultanate. 

They noted that Oman can use existing models, thus develop the sector quickly. “Oman has a very unique opportunity. It can take lessons from abroad when it takes on Islamic finance within its own borders,” said Dawood Ahmedji, from Deloitte’s Islamic Finance Knowledge Center (IFKC). 

Ahmedji said there are lessons on government support, Sharia confidences, Sharia-compliant products and market education. Instead of starting from scratch, Oman can adapt existing frameworks and policies to suit its needs. 

The IFKC can help the regulators and banks have a better understanding of Islamic finance, said Alfred Strolla, from Deloitte’s Oman offices. 

“There are a lot of opportunities but there are also challenges and we’d like to bring these challenges into light,” Strolla said. 

Procedures and guidelines 
Local challenges include ensuring correct procedures and guidelines implemented by the local banks, he added. 

Abdullah Salem Al Salmi, executive vice-president of the Capital Market Authority, the market regulator, said it’s a mixed blessing that Islamic finance is just being introduced here. 

“The bad thing is that we have to learn a lot in a very short time, and the good thing is that we’re starting from where others have reached,” Al Salmi explained. 

There is a strong and growing demand for Islamic banking in Oman, Al Salmi said, and it has to be introduced so that customers don’t have to look outside the Sultanate for their Sharia- compliant banking services. It will also provide new opportunities for companies to invest here, he added. 

Hatim Tahir, director of the IFKC, said it will take a few years for Islamic banking to be up and running in Oman, but once it is here, there will be the possibility of more Sharia-compliant investments in the Sultanate. 

“The Sultanate of Oman has a growing manufacturing industry and has links with other parts of the world, so definitely corporations will see the benefits of Sharia compliance here,” Tahir noted. 

The panel also pushed the importance of having local Sharia scholars involved in Islamic banking and finance here. Knowledge of Sharia is key, because for many customers the religious aspect of Islamic banking is the biggest draw, not the financial benefits, Ahmedji noted. 

Attendees at the seminar were eager to learn how to implement Islamic banking locally. Ali Al Lawati, assistant manager at the Central Bank of Oman, said he attended the seminar to gain more knowledge and find out how his institution can develop Islamic banking. 

“We are here to understand. We want to provide something genuine, not marketing,” the Central Bank of Oman official said


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