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Finance Review: GCC. Part III: Sultanate of Oman - Highlighting Potential for Islamic Finance


Author: Tasnim Nazeer, Global Islamic Finance Magazine Editorial Team, United Kingdom


Overview of Islamic Finance in Oman The Sultanate of Oman is a country located in the Southwest Asia which borders the thriving Islamic financial hubs of the United Arab Emirates in the northwest, Saudi Ara- bia in the west, and Yemen in the southwest. Oman’s main wealth derives from its lucra- tive oil industry and the country is depend- ent upon oil of which the proceeds are heav- ily invested in infrastructure projects. Oman became a member of the WTO in 2000, signed a free-trade agreement with the US in 2006 and is a member of the Gulf Co- operation Council (GCC).


Oman is centred in the perfect location for Islamic banking and finance however it has made rather slow progression in comparison to other Islamic financial hubs such as Saudi Arabia.


The Sultanate of Oman has potential to thrive in the Islamic financial industry if it gives the industry a change to shine. Islamic finance has already been implemented in the Mid- dle East with many Middle Eastern countries offering stand- alone Islamic banks.


However Oman has not yet implemented a stand alone Islamic bank but offers Shariah compliant options through banks such as The National Bank of Oman and Bank Mus- cat which is mainly based in Saudi Arabia. The country itself has not amended regula- tions which allow complete Islamic financial institutions to run on their own. Islamic fi-


60 Global Islamic Finance October 2010


nance has been widely accepted in the Mus- lim world and with Oman having a predomi- nant Muslim population one would think that the country would have already tapped into the growing Islamic financial market.


However, the ongoing debate since 2006, about whether to introduce Islamic finance into the sultanate and provide the neces- sary regulations to mobilize the sector, has become relatively muted.


The Sultanate of Oman is, however, a mem- ber of the Islamic Development Bank and is the birthplace of Bank Muscat, whose Islam- ic finance activities are mainly carried out in Saudi Arabia. Bank Muscat currently spe- cializes in consumer and corporate banking services and is looking at more investment and private banking in the near future.


The graph above shows the penetration of the Muslim population in the Arab Continent with Oman having an 80 per cent. This indi- cates that there is a sound scope for Islamic finance and the demand of finance can fur- ther grow if given the chance.


Introducing Islamic Finance in Oman


Over the Years Over the years the Sultanate of Oman has taken a rather slow stand in competing for a part in Islamic finance in comparison to neighbouring countries such as Saudi Ara- bia and the UAE who have diverged and tapped heavily into the Islamic finance sec-


tor to cater for the predominant Muslim population. Islamic Finance has been wildly successful in other countries such as Malay- sia, accounting for 10 per cent of all banking operations there. In the GCC region, Bahrain was the first to catch on to the trend and promote the concept. And the UAE has seen a renewed push in this sector in the recent times.


However in 2010 Oman is set to show more interest in the emerging Islamic finance mar- ket as it has made recent moves to imple- ment Islamic finance in different industries in the country.


Oman however still needs to ensure that regulations are amended to cater for the thriving industry of Islamic finance. Since the discussion of Islamic Finance in 2006 The Central Bank of Oman (CBO) does not allow the local banks to deal in Islamic fi- nance, banking or insurance products which make it difficult for people to utilise Shariah compliant product and services.


On that count, the Sultanate has a different policy compared to its GCC peers like Bah- rain, Saudi Arabia, Qatar or the UAE. But companies operating in the Sultanate are in- creasingly climbing on to the Islamic Finance bandwagon and further expressing a new in- terest in the introducing Islamic Finance in Oman. As of now, the regional banks have moved in to fulfil this need. Musab Abdullah Al Mahruqi, the Deputy Chief Financial Offic-


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