Financial Crime World

Financial Institution Compliance Requirements in Oman: A Decade of Growth and Evolution

Oman has made significant strides in developing a robust regulatory framework to support its Islamic finance industry over the past decade. Since the introduction of the Islamic Banking Regulatory Framework (IBRF) in 2012, the country’s Sharia-compliant banking sector has grown by 9.1% year-on-year, reaching a market share of 16.2% of total banking sector assets.

The Role of the Central Bank of Oman (CBO)

The CBO has played a crucial role in regulating the Islamic banking industry, introducing measures to ensure transparency and compliance while promoting the principles of Islamic finance. The IBRF outlines regulatory requirements for Sharia-compliant commercial and investment banking activities, including:

  • Licensing requirements
  • Governance standards
  • Accounting practices
  • Risk management procedures

Growth of Oman’s Islamic Banking Segment

The growth of Oman’s Islamic banking segment has been accompanied by a proliferation of fully fledged Islamic banks and Islamic banking windows. By 2022, the market had expanded to comprise two Islamic banks and five Islamic banking windows, catering to a diverse customer base ranging from:

  • Individual investors
  • Small businesses
  • Large corporations
  • Government entities

Challenges and Opportunities

Despite the growth, there are still gaps in distribution channels, limited product offerings, a relatively small capital base, and insufficient sukuk investment options that remain challenges for the industry. However, consolidation within Oman’s Islamic banking industry has been encouraged to address these issues.

Examples of Consolidation

  • The takeover of Alizz Islamic Bank by Oman Arab Bank in 2020
  • The potential merger between Bank Nizwa and Sohar International Bank

Future Outlook

The appetite for Islamic banking products in Oman is expected to expand, driven by:

  • Rising awareness
  • Elevated oil prices
  • Positive real GDP growth
  • Supportive regulation

The industry’s financing growth outpaced its conventional peers in 2021, expanding by 11.6% compared to 3.1%, and at a compound annual growth rate of 9% between 2017 and 2021.

Growth Potential

The growth potential for Oman’s Islamic banking segment remains high given the country’s:

  • Muslim-majority demographics
  • Banking penetration rate
  • Ongoing diversification agenda

With consistent expansion in terms of assets, market share, loans, and deposits since its emergence in 2012, Oman’s Islamic banking industry is poised for continued growth in the years ahead.