Prospects and challenges of Islamic Banking Oman Economic Forum 18 March 2014 Dr. Jamil El Jaroudi.
Www.bankmuscat.com 23-01-2012 Islamic Banking ‘The New Form of Banking in Oman’
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Transcript of Www.bankmuscat.com 23-01-2012 Islamic Banking ‘The New Form of Banking in Oman’
Table of Contents
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Concept of Islamic Banking
How Islamic Banking differs?
Growth Factors for Islamic banking
Islamic banking windows
Way Forward
.
Transactions must typically be backed by assets. No returns on lending of cashAsset backed
Payment / receipt of interest is prohibited. Profit is encouragedInterest free
Investments, or the tangible assets backing investment instruments, should not belong to prohibited industries (e.g. alcohol)
Restricted investments
Extreme uncertainty and/or lack of transparency (Gharar) is prohibited (e.g. in options, futures and other derivatives)
Extreme uncertainty
Based on the principle of assuming risk to obtain rewards to foster justice in transactions; risk sharing is fine but risk transfer is notRisk-sharing
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Key Differences with Conventional Banking
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Asset Products Structures
Islamic products can be structured using different underlying contracts vis-à-vis risk implications,
regulatory directions, market dynamics and sharia advisor.
Estimated over US$ 1 trillion in 2011Market size
Presence in over 75 countriesGeographic reach
Approx. 20% over the past decadeGrowth rate
15-20% p.a. in the foreseeable futureExpected growth rate
Over 450 Islamic financial institutions worldwide, another 100-150 likely to come into existence in the next 10 yearsIndustry players
Source: Industry reports
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Global Industry Highlights
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Islamic banking Potential in Oman
GCC Islamic banking represents 26% of total market size (EnY)
IFIs will have 60% market share in GCC by 2015 (IFSB)
Islamic banking assets in Oman will be 8-10% over next few years (Oliver Wyman)
Given GCC fact sheet, Islamic banking assets in Oman could be $10 bio
59% very interested and 26% quite interested (IFAAS)
Source : S& P report
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Meethaq home finance
Started operations in 2008Total portfolio is over RO 75
MioTotal Meethaq customers are
over 2000Majority of the customers are
first time borrowersPioneer of Islamic Banking in
Oman
Window’s business model Muslim Population Growth
Sharia governance structure Government Support
Oil Revenues of GCC States
Legal System/ Accounting Standards
Training / AwarenessRegulatory Reforms/ Legal
FrameworkIslamic Finance Growth
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Driver for Growth in Oman
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Pros & Cons of Window
ADVANTAGES
Easy head- start in new market
Leverage on existing infrastructure
Instant tweaking to gear up IT systems
Cost to do the business is lower
Value added services to customers
DISADVANTAGES
Public perception – too close to parent
CHALLENGES
Need public awareness about window’s operations
Windows Operation
s
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CBO Framework
Sharia Framework
Business Ethics
Corporate Governance
Fundamentals
Funds Segregation
Funds Segregation Assurance
IT SystemSeparate
Book
External/ Regulator’s
Audit
Funds Segregation
Policies
IIFM, AAOIFI & IFSB
Sharia Inspection
ALM Guidelines
S y s t e m a n d C o n t r o l s
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Window’s Governance Structure
• Separate capital allocation• Stand alone Islamic branches (vs. Islamic counters in
conventional branches)• Separate books of accounts• Separate IT system• Reporting standard (AAOIFI vs. IFRS with additional
disclosures)• Organization structure• Independent Sharia Board