Islamic banks must innovate to reverse ‘tapering’ growth: CBO

The Central Bank of Oman (CBO) has urged Islamic banks and banking windows in the Sultanate to innovate new products and services in order to sustain the growth of this key segment. Tahir Salim al Amri, Executive President, said the sector, having delivered nearly five years of consistent growth since sharia-compliant banking and finance was added to the banking system in 2011, is showing signs of a “tapering” of its once remarkable growth trajectory.
While the ongoing fiscal and economic downturn linked to the low oil price environment is partly to blame, the downtick can be reversed through, among other measures, the introduction of new sharia-compliant financial products and services that are not simply clones of offerings by the conventional banking sector, he noted.
Al Amri made the comments in a keynote address at the IFN Oman Forum 2018, which was held at the Grand Millennium Muscat yesterday. Organised by REDmoney Events, the annual forum brought together a distinguished line-up of speakers comprising high-level industry players, decision-makers and regulators for deliberations on sharia finance opportunities, market trends, and other pertinent topics.
The Executive President nevertheless praised the Islamic Banking and Finance sector for coming a long way in its growth over a relatively short period since its inception in the Sultanate. In addition to two full-fledged Islamic banks, the sector now boasts a total of 76 Islamic Banking Windows spread all around the country, he said.
“I truly believe achieving these results in such a short span of time is quite encouraging and I congratulate the Islamic banks and banking windows on this achievement,” he said, noting that the sector accomplished this growth despite the low market base, and the unavailability of certain segments to sharia-compliant banking and finance.
Significantly, Islamic Banking now accounts for a 12.1 per cent share of total banking assets as of 2017-end. The share is 12.9 per cent in terms of financing, and 13.8 per cent in customer deposits, Al Amri said. But he warned that the growth rate is now tapering, and stressed the need for greater product diversification and business thrust, both in terms of finance and funding. Rather than compete with conventional banking for business or replicate its offerings, Islamic banks and banking windows should seriously look at innovation in their product and service offerings, he said.
“Our focus should be to improve efficiency of processes and solutions for sectors that are key to the growth of the economy as a whole,” the official said. He also urged the Islamic banking institutions to tackle another key challenge: development of business resources with the requisite skills and knowledge of sharia-compliant banking. The Central Bank, for its part, is “working rigorously with the concerned authorities to refine the required elements of the existing legal and other infrastructures and I am very positive that we have the full support from all parts of the government and we are progressing in the right direction,” the Executive President said.
Al Amri voiced the hope that the sector would grow rather overall, rather than share the same pie. “We want greater overall growth, so that everyone benefits,” he stated. Asked about plans, if any, for new bonds of sukuk issuances, the Executive President noted that external bonds and issuances were essentially the prerogative of the Ministry of Finance. “However we work with the ministry whenever they believe that it’s time for an issuance. We use our platforms for local issuances, but also participate with them for foreign issuances,” he added.