Bank Nizwa on Oman’s Islamic banking sector | Video

Transcript

Oman’s Islamic banking sector is growing quickly, and institutions, such as Bank Nizwa, have seen the benefits of Sharia compliant operations in the region. World Finance talks to Dr Jamil El Jaroudi, CEO of the bank, about how Sharia compliance is developing in the Arab state, what is his organisation is doing to raise awareness of it.

World Finance: Dr Jamil, Bank Nizwa is Oman’s first dedicated Islamic bank, how is Islamic Finance growing in Oman, and how is this helping the country to develop?

Dr Jamil El Jaroudi: From the legal point of view, definitely it’s going faster than what we experience in other Gulf states, because it took a longer time there to evolve and develop. The difference here is that they’ve learned from previous experiences. However, on the market share, it takes a lot of time first of all, because you are lacking still the awareness of the audience. I mean, definitely, they like that, they wanted it, but it takes some time, so the percentages of growth were not as anticipated by the studies which were made early on. On the development side, it takes time for the role of Islamic banks to appear. Today they are taking only a share of the present market, because it will be shifting from one industry to another. However, when they get more and more involved into the core of any economy, like the SMEs, project finance, and trade finance, I’m sure that will take its position and share like any other state in the Gulf.

We’ve trained recently teachers, who are going to be teaching children about Islamic finance

World Finance: Well what challenges did you face during your inauguration?

Dr Jamil El Jaroudi: First of them was to create the awareness of the audience, it is not enough to want something, it is how to understand how this specialised industry works. Second challenge was that the regulator in general were a little bit conservative at the beginning, and that’s understandable, because they don’t want to introduce a new body into the banking sector without knowing its implications. And the third challenge would be in creating the infrastructure, especially on the IT systems. We started form scratch, and we had to a lot of users’ acceptances testing, UATs, for our systems. And most importantly is to train the people, because Oman has lot of good bankers in the conventional sector, but very few of them knew Islamic banking, because its still a new industry.

World Finance: Well what role does Bank Nizwa play in raising awareness for Islamic banking in the country?

Dr Jamil El Jaroudi: Basically, it doesn’t happen overnight. You have to go through, first of all, continuous seminars and many conferences. We had to go through the universities, because we believe also that the future is for the young generation, and we got some kind of strategic planning with the banking school in Oman, and also we invited an international university from Malaysia which is expert in Islamic finance to help us in training people. Also, we are relying on the media to help us in creating that awareness, and the Ministry of Education. We’ve trained recently teachers, who are going to be teaching children about Islamic finance. So it’s going to be a long process.

World Finance: Well what stage is Islamic Banking at compared to traditional banking in Oman?

Dr Jamil El Jaroudi: We are only one-year-old, we are the first Islamic bank, and then we were followed by another full-fledged Islamic bank, and there six conventional banks who opened windows. Still, collectively, we didn’t capture on the asset side more than around three percent of the market, but if you look at the incremental between 2012 and 2013, that represents 50 percent of the incremental market. On the liabilities side, the deposits, it was one percent representing 12 percent of the incremental in that year. So I’m sure that in three to five years the position of Oman will be like most of the Gulf states, between 15-20 percent of the total market will be captured by Islamic Finance.

[B]etween 15-20 percent of the total market will be captured by
Islamic Finance

World Finance: Well the Omani government has announced that it will issue a Sukuk in 2014 to cover the budget deficit. How are you preparing for this?

Dr Jamil El Jaroudi: We were the issuer of the first Sukuk issued in Oman for a private company, before the government decided to do that. So the way we prepared ourselves first of all is to get a licence for the investment banking, to be allowed in addition to the retail and commercial to do investment banking, which is the advisory services, under which you can underwrite for the Sukuk issues, which you can structure, and later on sell them to the market. I have a very good team also specialised in Sukuk, which we did issue it in other countries, be it in Bahrain, be it in Malaysia. We are very well prepared from that angle. And we are lining up also the other Islamic banks, I need to see how we can play a role collectively, either through somebody leading that or creating a syndication or strategic alliance. So we are very ready, waiting to know what are the government intentions, what type of Sukuk they want to issue, and the size we know about now, it’s going to be 200m Omani rial. This is as a start, and I’m sure that will continue later on as a sequence of issuance.

World Finance: Finally, what plans does Bank Nizwa have for expansion?

Dr Jamil El Jaroudi: We have a policy to say that we want to work before we run. So our objective first of all is to cover the Omani market as much as possible. We opened the first day with three branches, today we have seven branches, after one year. This quarter we will be opening another two branches, and maybe another four before the year ends, which will allow us to, as much as possible, cover Oman geographically. However, there are alternative channels we are going to consider soon. In certain areas you don’t have to open the same time of branches, you can open what we call alternative channels, like a kiosk or small branches, or use internet banking, telephone banking. So that will give us also access to certain cities. But our ultimate expansion plan is we want to be a global leading Islamic bank born in Oman.

World Finance: Dr Jamil, thank you.

Dr Jamil El Jaroudi: Thank you.