furqan ahmad senior partner head of islamic banking advisory, horwath mak

Furqan AhmadSenior Partner

Head of Islamic Banking Advisory, Horwath Mak

Session II: Islamic Banking and Finance in Oman: Present Status and Future Trends

Oman Second Islamic Banking & Finance Conference

www.crowehorwath.netAudit | Tax | Advisory

Crowe Horwath International

Furqan AhmedHead of Islamic Finance

03/17/2013

3Audit | Tax | Advisory © 2011 Crowe Horwath International

Past

Present

Future

Agenda

Growth is always the need of the hour across institutions, across industries & sectors


The past


Strong appetite for Islamic Finance

products in Oman. A rapid up-take of

banking products was expected within first 12 months of launch

Source: Islamic Finance Advisory & Assurance Services (IFAAS) Report – 26/12/2011

The past

Market Research till 2011 (Prior to launch of Islamic banking in Oman)


About 85 per cent of consumers in Oman

expressed an interest in Islamic finance

products, of which 59 per cent were very

interested and 26 per cent quite interested.


The past

Market Research 2011 (Prior to launch of Islamic banking in Oman)Islamic Finance in Oman - Sizing the retail market


Nearly 70 per cent of consumers in Oman

anticipated opening an Islamic savings account in first 12 months with

half (35 per cent) expecting to do so within

three months of one becoming available.


The past



About 77 per cent of consumers in

Oman expected to take out Islamic financing within

the next 1-2 years.


The past



86 per cent of consumers in Oman had

some kind of conventional banking products, of which 60

per cent declared to be 'bothered' about using

products that were based on Riba.


The past



This further re-enforced the strong potential for retail Islamic finance in

Oman, inferring that a high proportion of consumers

engaging in financial activities were likely to

switch to Sharia compliant alternatives when they

become available.


The past



The present


Banks are expected to achieve an asset base of OMR 1.5 billion by the

end of this year and OMR 3-4 billion in the next

three to four years. Islamic institutions may capture

5% to 7.5 % market share by year-end

Source: The Time of Oman news on SATURDAY, January 19, 2013

The present

Islamic banking in Oman poised for mega growthEmerging Scenarios (1)


Sharia-compliant

institutions may raise OMR 1

billion by year-end


The present



Paid up capital of Islamic banks

and window operations is estimated at OMR 550 m


The present



Growth in liability side is easy due to pant up demand


The present



Institutions, and high net worth individuals are

expected to bring back funds

from overseas


The present



Islamic banks may focus on

personal finance

portfolio as a growth area


The present



Bank Nizwa has started operations, while Bank Muscat and National Bank

of Oman have commenced their

window operations.


The present



Two other banks — Oman Arab Bank and Bank Dhofar — are

starting window operations, as others are trying to enter the market with Sharia-

compliant products as early as possible.


The present



Banking sources said that there was a rush among customers for the opening of new

accounts with the first Islamic bank in Oman after the inauguration

of its main branch.


The present



Marketing and promotions will play an important role in creating

awareness among the people to transfer their funds from

conventional banks to Sharia-compliant line of banking.


The present

Role of Marketing and promotions


As far as foreign exchange exposure is concerned, an Omani Islamic

bank cannot invest more than 40 per cent of its net worth in foreign currency denominated assets,

except in sukuk.


The present

Opportunities (1)


The single exposure limit in foreign currency exposure is

limited at 5 per cent. The maximum investment ceiling for

sukuk is 30 per cent.


The present

Opportunities (2)



The future

A lot of institutional money, which had left Oman, is likely to come

back to the country, as it is convenient to deal with a local bank

than an institution based outside the country.



The future

To deploy their funds – Islamic Banks should look at largest retail portfolio of

conventional banks – it is personal loans. Therefore it is likely that most

people will approach Islamic banks for personal finance, mortgage finance and

auto finance.



The future

There will be an increasing preference among Muslims to deal with Islamic banks

(for remitting money)



The future

As far as the corporate lending is concerned, Islamic institutions will

offer project financing for real estate development, for building

infrastructure projects like airports, sea ports and power plants.



The future

Islamic banks will be keen to deploy funds for getting good returns. Also, these banks will

provide funds for working capital requirements of manufacturing

and service industries



The future

Another investment avenue will be

treasury and capital market products.



The future

Islamic institutions will definitely invest in retail and corporate portfolios (than in treasury instruments) due to

high profit margins.



The future

There is a huge opportunity for sukuk to be introduced in the country, which will

channel Islamic funds into productive areas like infrastructure development,

manufacturing industries and small and medium enterprises (SMEs). It is a bridge

for channeling funds from Islamic institutions to SMEs.



The future

Oman would witness a growth of sukuk issues and Islamic funds in the next two

to three years due to excess liquidity among Sharia- compliant institutions in the initial period. That will promote the

growth of sukuk.



The future

Islamic insurance or takaful will also benefit from the

development of Islamic banks as these institutions require Sharia-compliant insurance coverage for

their products.



The future

Islamic Financial Institutions will try to

invest maximum funds in Oman.


Final thoughts

Government should encourage foreign banks to open window

operations in Oman as they can bring in their expertise, which were

tried and tested in their home market. They can bring ready-

made products as well and benefit Oman


Shukran


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For more information, contact:Furqan AhmadDirect +971.4.44739.59Mobile [email protected]

furqan ahmad senior partner head of islamic banking advisory, horwath mak

Documents

audit tax advisory

present islamic banking

launch of islamic banking

time of oman news

omanislamic finance

retail market

future trends oman

past market research