What role does Ernst & Young play in facilitating business in Oman?

UMAR: Ernst & Young has been actively involved in business in Oman, operating there since 1974. When the government decided to allow Islamic banking back in 2011, we were one of the first professional service firms to offer our help. We have a Global Centre of Excellence in Islamic Banking, which is based out of Bahrain, and operate globally. This is a specialist group of highly qualified industry professionals. Along with our local office leadership in Oman, we engaged early on with the regulators and banks interested in launching Islamic banking. We were chosen by the Central Bank of Oman to assist them in preparing Islamic banking regulations. This was a significant assignment and we were honored to have been part of this. We also assisted the first Islamic bank in Oman to commence commercial operations, helping them to become ready for launch within 12 months. We have also been engaged by a number of commercial banks that are launching, or have launched, Islamic windows. So we are very active in Oman and are committed to remain so.

What are the reasons that Oman has only recently established an Islamic banking sector?

UMAR: We believe this was a strategic decision, which the Omani government decided was fit to take in 2011. They probably wanted to evaluate the lessons from and the experience of other countries first. With the benefit of hindsight, I think that this decision has benefited them, as they can learn from the gains and challenges of the other countries and better address these issues when they launch.

How hungry is the Omani market for Islamic financial services?

UMAR: I think the market in Oman has significant potential. From our discussions with various stakeholders, we believe that the growth will be very high, possibly among the highest in the region. For example, the experience of one of the banks in Oman is that, of the total retail customers they have on the liability side, only 40% are also active on the asset side. They believe that most of those who are not active on the assets side stay inactive because of reasons of faith. So you can imagine that if the people who are not currently banking, come into the banking arena, they will add a lot of new business to the sector. Like any other market, we are not only expecting a shift from conventional to Islamic banking, but we are also expecting a lot of new people to come into the market. This is one of the major contributions that we expect Islamic banking to bring to Oman.

How will the introduction of Islamic financial products and services impact the overall landscape of Oman’s financial sector?

UMAR: Obviously the introduction of new players into the market is going to result in a much more competitive market. There will be a significant shift from conventional to Islamic banking. When this happens, it will put conventional banks on their feet too. Within Islamic banks, we are expecting high competition. We are expecting 6 conventional banks to open their Islamic windows in the Omani market and 2 full-fledged Islamic banks, one of which is already operational. Thus, we will have 8 new players coming into the market. While their entry will expand the market and bring new customers, it will also increase competition among existing players. I think that, overall, it will be a good thing for the market and especially for the customers.

What is your general outlook for Oman’s Islamic financial services sector in 2013? Which indicators are showing the most positive signs and which remain challenges?

UMAR: The first Islamic bank opened its doors back in January 2012. Two or three Islamic windows have just opened their doors and three more windows are expected to open. These are the initial phases for Islamic banks. The next 12 months are going to be very important, because the people who have been waiting for Islamic banking options are now going to experience it for the first time. A lot of activity will happen, but it may or may not necessarily reflect the longer-term trend. I would say that the first 12 months will be quite important and Islamic banks and windows should try to maximize customer acquisition during this time. Equally important, this is the time for Islamic banks and windows to lay solid foundations for long term and sustainable business. They have to put in place institutional practices and banking infrastructure that ensures that the customer is retained for the long term and that Shariah authenticity is not compromised. Banks which fail to do this will see high customer turnover and reduced profitability in the medium term.

How is the regulatory framework drafted by the Central Bank of Oman (CBO) going to affect the Islamic financial services sector on a global scale?

UMAR: The regulatory framework that the Central Bank of Oman has put in place is, in my opinion, quite robust and unique in a number of different ways. Specifically, from a Shariah governance perspective, it is probably among the best frameworks. A number of the unique features that the CBO regulatory framework has come up with may well become trend setters for the Islamic banking industry globally. I believe that the implementation phase that we have ahead of us will be quite critical, which requires conscientious bankers as well as an uncompromising regulator. If this regulatory framework is properly implemented, it will become an example, not only in the GCC but for other countries throughout the world too. In that sense, Oman has the potential to play a prominent role in the Islamic financial industry globally.