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Oman’s Islamic finance sector surges with regulatory boost

Oman is experiencing a surge in its Islamic finance and banking industry, driven by new regulations and a supportive regulatory framework. The sector gained momentum in 2011 when a royal decree authorised its operations. The Central Bank of Oman (CBO) then introduced the Islamic Banking Regulatory Framework (IBRF) in 2012, followed by the establishment of a dedicated Islamic banking department in 2015.


In a post-event report by IFN, following the successful holding of the IFN Oman Forum 2023, the CBO, in 2019, announced plans to amend the IBRF, offering more independence to Islamic windows and facilitating their transition to a subsidiary model. This move is expected to enhance the competitiveness of Islamic banks and windows, attracting more investors and spurring further growth in the industry.


The Capital Market Authority (CMA) oversees Islamic capital market activities and the Takaful sector. In 2016, the CMA introduced regulations including the Takaful Law and guidelines for issuing Sukuk. Recognising the sector’s growth potential, the CMA amended the Takaful Law in 2021, specifically separating healthcare Takaful regulation from other Takaful activities. This demonstrates the regulator’s confidence in the sector and commitment to its development.


The CMA plans to publish a Virtual Assets Regulatory Framework and updated regulations for Oman’s bond and Sukuk markets by the end of 2023. These efforts underscore Oman’s determination to embrace emerging technologies and ensure the country remains a desirable destination for Islamic finance.


Oman currently has two fully-fledged Islamic banks and six Islamic windows, catering to the increasing demand for Shariah-compliant financial services. Notably, Oman Arab Bank (OAB) completed its takeover of Alizz Islamic Bank in mid-2020, resulting in the integration of OAB’s Al Yusr Islamic window into Alizz Islamic to establish a standalone Islamic bank.


As of July 2023, Islamic banks and windows in Oman reported a 13% year-on-year increase in total assets. Collectively, they hold around 17.2% of the country’s total banking system assets, up from 15.9% in June 2022. This growth reflects the growing acceptance and popularity of Islamic finance among individuals and businesses in Oman.


The CBO and CMA are also embracing fintech solutions. The CBO is developing its Fintech Regulatory Sandbox, with a focus on Islamic fintech solutions. Meanwhile, the CMA is working on a crowdfunding platform to improve SMEs’ access to Islamic financing, promoting entrepreneurship and economic growth.


To address liquidity needs, regulators are introducing Shariah-compliant liability management products and other Islamic money market instruments. These measures enhance the sector’s resilience and ensure long-term sustainability.


Oman’s engagement with the Sukuk market has been noteworthy. The country successfully issued its debut dollar Sukuk in 2017, followed by subsequent issuances in 2018 and 2020, raising significant capital to support government activities and bridge budgetary gaps. In addition, Oman’s first sovereign Sukuk opened for retail investors in late 2020, indicating strong investor confidence in the country’s Islamic finance offerings.


Oman’s commitment to Islamic finance extends to the Muscat Stock Exchange, which tracks 23 Shariah-compliant companies. The Takaful sector, with Al Madina Takaful and Takaful Oman Insurance as the only two players, has experienced steady growth, capturing a 14% market share by the end of 2022. Takaful Oman made history by issuing the region’s first perpetual Sukuk facility by a Takaful company in 2021.


The country is also exploring the potential of blockchain technology in the insurance and Takaful sectors, aiming to improve operational efficiency and offer innovative solutions.


With strong regulatory support and a growing ecosystem, Oman’s Islamic finance sector is poised for further expansion. The country’s efforts to refine its regulatory framework and embrace emerging technologies make it an attractive destination for investors seeking Shariah-compliant financial opportunities in the region and beyond.




Oman Daily Observer