Islamic banking is in its infancy in Oman. The Islamic finance industry took off in the country with the opening of the first three branches of Bank Nizwa in January 2013.
Being the first fully-fledged Islamic bank in the country, Bank Nizwa believes it has a responsibility to ensure penetration into the market; to help create awareness about the industry and its potential contribution to the whole economy; to prove that Islamic finance is a professional service-oriented industry that can be part of one’s daily life; and to eventually have Oman play a role in the continued development of the Islamic finance industry. Dr Jamil Ak El Jaroudi, CEO of Bank Nizwa, spoke to World Finance about the challenges and opportunities of the market, and what to expect from Bank Nizwa and Oman in 2014.

How quickly is Islamic banking catching on in Oman, and what role do you think it will play in the country’s development?
Islamic banking as a working practical entity may be in its infancy in Oman, but it has been a need of many Omanis across the sultanate for a very long time. From the outset, with the release of the Islamic Banking Regulatory Framework (IBRF) by the Central Bank of Oman (CBO), the need for a strong and cohesive banking industry was clear. Islamic banking has been embraced with fervour by the people of Oman. Here at Bank Nizwa we have many customers visiting our branches for sharia-compliant finance.

The launch of Bank Nizwa has propelled Islamic banking and the economy of Oman to a higher level of development and we are driven towards creating a prosperous society and a stable economy. In fact, the Islamic banking industry worldwide boasted a growth rate in excess of 30 percent over the last two years, and a further increase is expected in the coming years. We have established Bank Nizwa as a centre of excellence for Islamic banking, where we provide a just and equitable model for economic growth through a range of banking tools. This is particularly true of our Islamic bonds (sukuk), which leverage the economy to new heights through the financing of public sector projects.

Why has Islamic banking come later to Oman than it has done to the neighbouring GCC countries?
Oman was prudent in opening its doors to Islamic finance. We are a relatively small country, and in the last years we have seen the country grow and the economy continue to change positively. The IBRF by the CBO is a testament to the wise leadership of Sultan Qaboos bin Said, who paved the way for sharia-compliant financial products in the country through a royal directive issued in May 2011. The IBRF was devised in consultation with the global Islamic banking community and other regional and local experts. The CBO has learned from Islamic banking markets throughout the world, bringing together best practices to give Oman a tailored regulatory framework. The environment needed to be perfect before Islamic finance was ready to be launched. The key demand drivers for Islamic banking in Oman include its fast growing economy, leading to an environment of enhanced trade and commerce; increased fund raising; and investment from corporate houses and the sultanate’s young population.

Oman may be a relative latecomer to Islamic banking, but the industry is expected to grow rapidly. In time, it will make a meaningful contribution to the country’s economy and savings mobilisation strategy.

What are the bank’s plans regarding the government’s decision to issue a Sukuk in 2014 to cover its budget deficit?
Islamic banks expect that this issuance will be sizable and liquid to enable the banks to use it as a liquidity management tool. The issuance is also likely to receive special exemptions from the regulators vis-à-vis limits and capital treatment. The issuance will be in multi-tenors to create a benchmark yield curve for Oman, which all other financing products, instruments and funds can be priced or measured against.

Local Islamic banks expect the government to specifically set aside a fund which will be issued as an international Sukuk with a sovereign rating and that the lead arranger role will be given to the local Islamic banks in Oman, to help them gain international recognition, especially during its infancy stage. This will be a boost to the image of the local Islamic banks new to the international market, which will help them attract new funding from external sources.

There is a huge expected demand for a government Sukuk, so not only it will cater for what the government needs, but it will also ensure good pricing. It will be a tremendous solution for the Islamic banking industry in Oman, where there are no risk-free instruments currently available for Islamic banks to manage their liquidity. Bank Nizwa is already fully prepared to undertake a Sukuk issuance, subject to any limitations and its own internal requirements.

How does Bank Nizwa plan to raise awareness of Islamic banking among the Omani population?
Bank Nizwa has collaborated with Malaysia-based INCEIF (The Global University of Islamic Finance) since last year to spread knowledge about Islamic finance in Oman. The partnership establishes Bank Nizwa as an authority in Islamic banking dedicated not only to providing sharia-compliant financial products but also working towards the development of its employees, who will benefit from training sessions held at the INCEIF campus in Malaysia. The training programmes will allow the Islamic banking and finance personnel in Oman to interact with their counterparts from INCIEF as well.

Bank Nizwa also takes to the roads of Oman with ‘Roadshows’, which are part of an effort to get closer to the customers, communities and individuals in different parts of Oman, and to offer them useful information on Islamic banking and the Islamic finance industry. This enables us to deliver on our promise to the people of Oman: to make Islamic banking accessible to everyone.

We believe that the youth of Oman will play a major role in Islamic banking in times to come, so we are investing in that youth. We hosted a one-day Islamic finance conference at Sultan Qaboos University (SQU).

Islamic banking has been embraced with fervour by the people of Oman

The conference – the first of its kind in the Sultanate – was organised by the bank for the students and staff of SQU and created a strong partnership between the bank and the faculty of commerce at the university. The objective of the event was to raise awareness of the benefits and advantages that Islamic finance brings to the economy. In addition, it demystified the Islamic finance sector for future decision makers and leaders in the corporate world, giving students the opportunity to meet with the highly skilled Bank Nizwa team and address any questions they had on the sector. It is just one in a series of initiatives that the bank has planned in order to advance Islamic financial knowledge and develop future leaders in the Islamic finance industry. Furthermore, Bank Nizwa has arranged and executed several similar dedicated seminars to various government entities, specific to their needs, which proved to be very positive and interactive.

What is your expansion strategy in the years to come?
We will continue to increase our product offerings gradually to ensure that our customers can familiarise themselves with the principles of Islamic Banking. We have a range of products and services, which include Auto Murabaha, Goods Murabaha, Home and Land Murabaha, Service Ijarah, Home Ijarah and Land Ijarah. We also offer the opportunity for our customers to invest and earn a return through a sharia-compliant savings account. In addition, we offer a Mudarabah-based investment account, which helps our customers better manage their investment needs. Shortly we will be introducing more exciting investment products not currently available to the public.

The Bank Nizwa MasterCard debit card is available for all customers and the bank plans to launch sharia-compliant MasterCard credit cards in the second half of 2014.

We now have seven fully serviced branches. We also have a dedicated phone banking centre that is available to our customers 24-hours-a-day throughout the year, and soon our customers will have access to their banking needs over the internet. We are consistently working on enhancing customer experience across all our touch points and delivering innovative products/high-quality services across all areas – from home finance to savings accounts. We are committed to expanding our branch network across the sultanate to answer the growing needs of the population of Oman.

What are your ambitions for the bank in the near future, as well as for Islamic banking in Oman as a whole?
Bank Nizwa is redefining banking in Oman, and will continue to do so as a leading global Islamic bank. We strive to be the sharia-compliant bank of choice, and aim to find better and more innovative ways to deliver products and services to our customers. Since its inception, the bank has been making history in the financial landscape of Oman and is committed to creating an environment that serves as an inspiration for other Islamic banks and Islamic branches of conventional banks. As part of our strategy, we will continue our awareness campaign for Islamic finance and reach out to different parts of the country.