Changes to the Omani regulatory landscape, possible Islamic bank consolidations, new Islamic REITs and changes to Takaful are expected to herald in a new age of Islamic finance in the country.
The pace at which Islamic finance has grown in Oman has been widely celebrated with Islamic banks and windows accounting for US$14.7 billion or 16% of total assets held by the country’s banking sector as at the end of June 2022. This achievement is mirrored in terms of Shariah compliant transactions which achieved an impressive 11% growth for the same period resulting in Islamic banking accounting for almost 20% of all banking transactions in Oman. Total deposits in Islamic banks have also increased by 12.8% by June 2022, rounding to a figure of OMR4.7 billion (US$12.17 billion). These growth figures are particularly impressive given that this has been achieved in only 13 years and despite the global slowdown caused by the COVID-19 pandemic and other economic and geopolitical factors.
Review of 2022
Overall, 2022 was a good year in terms of growth of the Omani Islamic finance sector. The year saw the government of Oman return to the capital markets when it issued an oversubscribed OMR150 million (US$388.54 million) Sukuk in the domestic market and then later reach out to the international capital markets to buy back US$1.75 billion of its bonds and Sukuk.
The year also saw the establishment of the Oman Investment Authority and Oman Telecommunications Company-backed Pearl Real Estate Investment Fund (REIF) and the launch of its IPO on the Muscat Stock Exchange; the IPO is expected to be the first and the largest such issuance by an Islamic REIF and should create liquidity within the Islamic capital market in Oman.
The tail-end of 2021 had seen the Omani Capital Market Authority (CMA) introduce its Rules for Crowdfunding Platforms (Decision No E/153/2021) which culminated in the CMA granting two crowdfunding licenses in Oman; first, to Malaysia-based EthisX and shortly thereafter to Dubai-based Beehive Technologies.
As part of the crowdfunding initiative, Beehive executed a tie-up with Ahli Bank through which the bank is expected to provide Islamic finance opportunities to the SME sector in Oman. Among the transactions highlighted above and numerous other project financings, the most notable perhaps has been news of the Sohar International Bank and Bank Nizwa merger, the commencement of due diligence of which was approved by the Central Bank of Oman (CBO) earlier in 2022.
As the Islamic finance sector awaits the outcome of the Pearl REIF IPO and the anticipated merger between Bank Nizwa and Sohar International Bank, there is a lot more to look forward to in 2023.
Preview of 2023
The CBO announced in October 2022 that it is introducing several Shariah banking initiatives which should address long-standing liquidity concerns of Islamic banks and windows. According to reports, these initiatives include the launch of infrastructure through which Shariah compliant liquidity products are being developed and will be offered to the market. These products are expected to include the offering of remunerative deposit accounts and the highly anticipated treasury Sukuk.
The CBO is also undertaking a review of Oman’s Islamic Banking Regulatory Framework which has served the industry well and has provided the launching pad through which its current growth has been achieved. The review is expected to focus on and enhance the Shariah governance framework for Islamic banks and windows and strengthen their external Shariah audit guidelines.
The review of the sector also involves the CBO possibly introducing guidelines to address ambiguities between the treatment of Islamic banks and windows post their merger with a conventional lender. Another important initiative of the CBO includes the development and introduction of a framework for rate of return calculation on Islamic banking deposits, accounts and products in line with international best practices.
The CMA is currently finalizing new regulations relating to the issuance of bonds and Sukuk. These regulations are expected to introduce international best practices within Oman and also set out a framework for the issuance of green/ESG capital market instruments. This initiative by the CMA is in addition to regulations relating to crypto assets it is expected to introduce by the end of 2022 to the beginning of 2023.
Conclusion
2023 promises to be an exciting year for Omani Islamic finance with all eyes firmly poised, for the time being, on the completion of the Pearl REIF, the potential merger of Sohar International Bank and Bank Nizwa and the introduction of new products and regulations by the CBO and the CMA.
Asad Qayyum is a partner at MAQ Legal. He can be contacted at [email protected].