Oman: New Developments in Islamic Financial Services

OXFORDBUSINESSGROUP.COM--A new index for Oman’s stock exchange is expected to provide a boost to the Sultanate’s nascent Islamic financial services sector and lead the way for additional sharia-compliant products.

In early June, the Muscat Securities Market (MSM) announced that it was close to launching a new index, one for listed companies that operate according to the principles of sharia, as set down by the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions.

To be known as the MSM Sharia Index, the benchmark will contain 31 listings. Industrial firms will be the best represented, with 18 companies, followed by 10 from the services sector and three from the financial industry.

This is the inverse of the MSM30, the exchange’s primary index, which is heavily weighted towards banks. The low number of financial firm listings in the new index can, to some degree, be explained by Oman’s late entry into the sharia-compliant finance field, with authorisation for Islamic banking coming only in 2011.

One of the smaller Gulf exchanges, the MSM has a market capitalisation of around $30bn (compared to a GDP of about $72bn), with 165 companies trading on its boards.

To ensure that the companies listed on the MSM Sharia Index continue to comply with Islamic business principles, quarterly reviews of their activities will be conducted, a process aimed at both maintaining standards and promoting confidence in the products being offered to investors.

The index is the latest development in Oman’s Islamic financial services market, which has been in existence since Sultan Qaboos bin Qaboos Al Said issued an enabling royal decree in May 2011. Since then, two new institutions – Bank Nizwa and Al Izz International Bank – have acquired banking licences, while established conventional lenders have opened Islamic windows.

In 2012 both Nizwa and Al Izz floated initial public offerings (IPOs), in line with the central bank requirement that they list at least 40% of their shares. The IPOs were strongly oversubscribed, suggesting an appetite for Islamic products on the MSM.

Sharia-compliant banks are expected to draw in new customers rather win market share from their conventional counterparts. As Hamood bin Sangour bin Hashim Al Zadjali, executive president of the Central Bank of Oman (CBO), told OBG in 2012, “The CBO ... believes that the advent of Islamic banking in Oman will complement existing conventional banking, augment financial inclusion and promote growth in the economy for years to come.”

According to Pradeep Asrani, managing director of investment services firm Gulf Baader Capital Markets, Islamic banks will capture a market share of up to 5% within two years, which in turn could promote further expansion into sharia-compliant investment funds and brokerages, as well as sukuks (Islamic bonds).

More generally, the availability of Islamic banking and other financial services is expected to act as a spur to the market and to the economy as a whole. In 2012, Ahmed bin Saleh Al Marhoon, the MSM’s director-general, told OBG that the introduction of Islamic banking would inject more liquidity into local capital markets as individuals seeking sharia-compliant investment options would no longer have to look abroad. The new MSM Sharia Index will provide one more reason for these investors to place their funds locally.

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New Developments in Islamic Financial Services

OMANOBSERVER.COM--A NEW index for Oman’s stock exchange is expected to provide a boost to the Sultanate’s nascent Islamic financial services sector and lead the way for additional sharia-compliant products. In early June, the Muscat Securities Market (MSM) announced that it was close to launching a new index, one for listed companies that operate according to the principles of sharia, as set down by the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions.

To be known as the MSM Sharia Index, the benchmark will contain 31 listings. Industrial firms will be the best represented, with 18 companies, followed by 10 from the services sector and three from the financial industry. This is the inverse of the MSM30, the exchange’s primary index, which is heavily weighted towards banks. The low number of financial firm listings in the new index can, to some degree, be explained by Oman’s late entry into the sharia-compliant finance field, with authorisation for Islamic banking coming only in 2011.

One of the smaller Gulf exchanges, the MSM has a market capitalisation of around $30 billion (compared to a GDP of about $72 billion), with 165 companies trading on its boards. To ensure that the companies listed on the MSM Sharia Index continue to comply with Islamic business principles, quarterly reviews of their activities will be conducted, a process aimed at both maintaining standards and promoting confidence in the products being offered to investors.

The index is the latest development in Oman’s Islamic financial services market, which has been in existence since the His Majesty Sultan Qaboos issued an enabling Royal decree in May 2011. Since then, two new institutions — Bank Nizwa and Al Izz International Bank — have acquired banking licences, while established conventional lenders have opened Islamic windows. In 2012 both Nizwa and Al Izz floated initial public offerings (IPOs), in line with the central bank requirement that they list at least 40 per cent of their shares. The IPOs were strongly oversubscribed, suggesting an appetite for Islamic products on the MSM.

Sharia-compliant banks are expected to draw in new customers rather win market share from their conventional counterparts.

As Hamod bin Sangour bin Hashim al Zadjali, Executive President of the Central Bank of Oman (CBO), told OBG in 2012, “The CBO... believes that the advent of Islamic banking in Oman will complement existing conventional banking, augment financial inclusion and promote growth in the economy for years to come.” 

According to Pradeep Asrani, Managing Director of Investment Services firm Gulf Baader Capital Markets, Islamic banks will capture a market share of up to 5 per cent within two years, which in turn could promote further expansion into sharia-compliant investment funds and brokerages, as well as sukuks (Islamic bonds). 

More generally, the availability of Islamic banking and other financial services is expected to act as a spur to the market and to the economy as a whole. 

In 2012, Ahmed bin Saleh al Marhoon, the MSM’s director-general, told OBG that the introduction of Islamic banking would inject more liquidity into local capital markets as individuals seeking sharia-compliant investment options would no longer have to look abroad. The new MSM Sharia Index will provide one more reason for these investors to place their funds locally.

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Global Islamic Finance Industry Needs to Build Economies of Scale

ZAWYA-- MUSCAT-- Financial institutions and regulators around the world need to work together to address challenges that are limiting the geographic growth of Islamic finance, according to a key expert. David McLean, Chief Executive of the World Islamic Banking Conference: Asia Summit, which opens in Singapore next week, said that although Islamic finance has come a long way, achieving significant growth over the last decade, the overall size of Islamic assets is still less than 1 per cent of the global financial system and the industry has still to build significant economies of scale.

"Being comparatively young, Islamic finance currently offers fewer product choices for consumers, while isolated pools of Islamic liquidity in each market restrict opportunities for more efficient allocation of capital across international jurisdictions," McLean ahead of the June 3 opening of the 4th Annual World Islamic Banking Conference: Asia Summit.

"As Islamic finance embarks on its next phase of growth, the industry must overcome these challenges and build scale, reach critical mass and expand its geographic footprint -- and this will require financial institutions, regulators, and international standard setting agencies to work more closely together," McLean stated.

More than 480 key Islamic finance leaders and senior decision-makers representing the major regional and international institutions, regulatory bodies and government agencies, are attending WIBC Asia 2013. The high-profile gathering will create an ideal platform to facilitate discussions on achieving further growth and international connectivity in the Islamic banking and finance industry in Asia.

According to Abdul Hamidy bin Abdul Hafiz, CEO of Kuwait Finance House (Malaysia), "The Islamic finance industry has shown tremendous growth in terms of business volumes, product innovation and geographical spread -- as well as achieving significant improvements in its legal and regulatory frameworks. The industry is now entertaining customers across wider segments and economic sectors and is moving well beyond its early niche status.

However, the Islamic financial system is still very small compared to the existing conventional economic system. With the lessons learnt from the recent global financial crisis, we are now well aware of the inherent dangers in unproductive capital. What is needed is a more efficient and effective mobilisation of investible surplus that promotes economic prosperity by financing real economic activities. This perfectly fits with the objectives of Islamic finance and by promoting and strengthening the cross-border connectivity in Islamic finance, it would allow capital allocation to the most efficient investment portfolios."

He went on to say that, "The role that the annual World Islamic Banking Conference: Asia Summit plays in bringing together industry leaders from key Islamic financial centres for dialogues on improving the global connectivity of Islamic finance is commendable and we are delighted to be once again supporting this key industry gathering." According to Sulaiman Alireza, Executive Director, Head of Direct Investments, Asiya Investments Hong Kong Limited, "There has been a significant expansion of both intra-Asia as well as cross-border trade flows between Asia and the Middle East.

Annual intra-Asia trade is expected to quadruple from current levels of almost $5 trillion to $20 trillion by 2020. Similarly, trade between the GCC and emerging Asia is growing at a rate of 25 per cent per year." He said the emerging Asian economies, excluding Japan, account for approximately 20 per cent of the world GDP. "Middle East investors are on the lookout for greater diversification, both in terms of geographical allocation and asset classes, beyond the traditional investments in the US and Europe."

© Oman Daily Observer 2013

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OAB gearing up to unveil Islamic banking products

ZAWYA.COM--Muscat: Al Yusr, Oman Arab Bank's (OAB) Islamic banking window, held its inaugural Sharia Supervisory Board meeting, wherein the board approved the products and policy manuals developed by Al Yusr to launch its Islamic banking services. The meeting was presided over by Dr Essam Al Enezi, chairman of the Al Yusr Sharia Supervisory Board. Dr Ahmad Ayyadi and Dr Khalid Al Siyabi, eminent members of the Sharia Supervisory Board and other the senior management of Al Yusr were present. The key products Al Yusr will offer upon its launch include Sharia-compliant auto and home finance, as well as a complete set of deposit products including current account, savings account and fixed deposit for the retail banking sector. Al Yusr has also affirmed its commitment to corporate and small and medium enterprises (SME) segments by developing a Sharia-compliant short-term working capital and term finance product, coupled with deposit product suites comprising current account and fixed deposit options, which the Sharia Supervisory Board has also approved. Extensive research Abdul Kader Askalan, chief executive of Oman Arab Bank, explained that the inaugural Sharia Supervisory Board meeting and its approval of these products follows months of extensive research and development Oman Arab Bank has undertaken to develop the product suite for Al Yusr. "While Islamic banking has been available in the market since the beginning of this year, we have utilised this time to deliberately study the market and the Islamic banking requirements of the Omani people," he said. "As a result, we have designed Al Yusr to meet the needs of Oman in a way that is both simple and easy to use; we will enter the market with products crafted specifically for Oman." "Oman Arab Bank is respected for its longstanding legacy and highly experienced management. We are working hard to maintain the public's trust and confidence by creating an Islamic Banking window that provides easy and simple services and products to meet our customers' unique needs," he added, Al Yusr head of Islamic banking, Azmat Rafique, explained Al Yusr's commitment to provide value added and simple financial solutions. "We share the same passion and commitment that Oman Arab Bank has for its retail, SME and corporate customers. Our endeavour is always to serve our clients with the best quality and comprehensive range of products. "This is an on-going process and we will keep adding innovative and simple solutions to establish Al Yusr as a trusted Islamic banking window."

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