The development of Islamic banking and the Omani Experience

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Clement Gerard Cross
8 years ago
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1 The development of Islamic banking and the Omani Experience

2 Growth of Islamic Banking Industry Remarkable growth, both in terms of size and reach, has been witnessed in the Islamic Finance Industry. Market Size Expected Market Size Growth Rate ROE Industry Players Estimated around US$ 1.8 trillion in 2013 (2011: US$ 1.3 trillion) Go beyond US$ 2 trillion by Annual growth rate 17%. Growing 50% faster than overall banking sector. Industry average ROE was 12% as against 15% of conventional, in Over 450 Islamic financial institutions worldwide. Source: The World Islamic Banking Competitiveness Report 2013 published by Ernst & Young

3 Growth of Islamic Banking Industry (contd ) In the 4 decades, Islamic finance industry has shown a meaningful growth. First Islamic Bank Established in Egypt Dubai Islamic Bank established under special law pioneering Islamic Banking in the Middle East region Iran introduces 100% Islamic Banking System Fiqh Council of OIC declares Takaful as fully Islamic paving the way for Islamic Insurance to flourish Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) established leading standard setting institution for Islamic financial industry globally IFSB introduces standards on Basel II compliance for Islamic institutions Islamic assets expected to exceed US$ 2 trillion by Islamic Development Bank (IDB) established to foster the economic development and social progress of member countries and Muslim communities. IDB participates in equity capital and grant loans for projects in member countries Sudan launches Islamic Banking Malaysia passes comprehensive legislation on Islamic Finance Sudan s banking system becomes 100% Islamic Islamic Financial Services Board (IFSB) established in Malaysia mandate to develop regulatory standards Total Islamic banking assets reach US$ 1 trillion, growing at 15% to 20% annually

4 Inclination Towards Islamic Banking Industry (contd ) Various countries are now showing inclination towards the Islamic Financial alternatives. Oman Egypt Kenya Hong Kong First two Islamic license awarded potentially a 10% market share play Considering sovereign sukuk Kenya to emerge as the Islamic finance gateway to East Africa HK legislating for Islamic banking Libya Banking industry to be made Shari a compliant Switzerland Islamic Bank of Switzerland to open Tunisia Central bank mulls Islamic banking regulations

5 Islamic Banking Regulatory Framework (IBRF)

6 IBRF - Objectives

7 IBRF Key Features 1. Licensing and Capital Requirements 2. Shariah Governance 3. Islamic Windows 4. Accounting and Auditing Standards 5. Capital Adequacy and Risk Management 6. Liquidity Management

8 IBRF Licensing and Capital Requirements With respect to the minimum capital allocation requirement, Central Bank of Oman has imposed various limits according to the type of Islamic Financial Institution (such as Islamic windows, fullfledged Islamic banks etc.) Other obligations includes establishment of Shariah Supervisory Board and internal Shariah reviewer, integration between Islamic and core banking system, submission of medium-term plan detailing vision for the future of the Islamic Bank / Window.

9 IBRF Shari a Governance Corporate Governance + Shari a = Shari a Governance

10 IBRF Shari a Governance (contd ) Primary objective of the Shari a governance is to provide a sound system, to govern all the business activities of the Bank, in order to ensure compliance with Shari a requirements at all times and at all levels. Moreover, Shari a governance also enables the Bank to be perceived as a Shari a compliant financial institution.

11 IBRF Shari a Governance (contd )

12 IBRF Islamic Windows

13 IBRF Accounting and Auditing Standards Full-fledged Islamic Banks and Windows will both report under AAOIFI accounting and auditing standards but can also prepare their accounts under IFRS, if needed. Consequently, external auditors may be asked to audit under both standards. AAOIFI s accounting and auditing standards has some key financial reporting differences i.e. it also requires the preparation of statement of sources of Qard-e-Hasan, statement of Zakat expense etc.

14 Meethaq Strategic Focus

15 Meethaq Strategic Focus 2013 Meethaq Mission Statement Committed to make Islamic Banking the banking of first choice for all stakeholders

16 Meethaq Strategic Focus 2013 (Contd..) Toeing to the line, in respect of the market prices offered by others. But the pricing actions will be based on the detailed study of market trends and responses of the competitors.

17 Meethaq Strategic Focus 2013 (Contd..) Obtain higher proportion of long term deposits from customers. Seek to obtain deposit for large organizations such as Pension Funds, Govt. bodies etc. Also need to invite deposits from across the border.

18 Meethaq Strategic Focus 2013 (Contd..) Massive business potential in the Islamic banking area. Large number of potential customers waiting for the Islamic financial products. Diversified nature of product portfolio to cater majority market needs.

19 Meethaq Strategic Focus 2013 (Contd..) Need to change the public perception of separate Islamic banking operations. Educate the people / customers through Nadwats and marketing documents (product broachers, booklet etc.).

20 Meethaq Strategic Focus 2013 (Contd..) Efficiently and effectively extend the Islamic banking services to the targeted segments. Proper utilization of the available technological means.

21 Meethaq Strategic Focus 2013 (Contd..) To impart a Shari a and banking knowledge. Instill a Shari a compliant culture. Training assessment of each category of employees and developing training plan.

22 Business Activities Analysis Q1 2013

23 Business Activities Analysis Q (Contd..)

24 Product Development

25 Product Development (Contd..)

26 Product Development (Contd..) POTENTIAL DEALS: - Advising CBO on liquidity instrument for IBs. - Sukuk issue of Real Estate projects. - Project Finance & Equity Arrangement for Industrial projects in Sohar

27 Ramadhaniat Meethaq

28 Branches and System Development

29 Meethaq Signature Branches Internet Kiosk RFID function Multi Touch Screen Video Call Kiosk Interactive ATMs/ CDMs Financial Theatre Virtual Assistant World-class customer service environment. Hotel lobby structure. Free Wi-Fi facility. Video Conferencing facility. Meethaq Smart 24/7

30 Branch Development Meethaq Signature Branches (7 Branches) Ghubrah Branch (Opened) Sohar Branch (31 Dec 13) Ibra Branch (31 Aug 13) Qurum Branch (30 Sep 13) Nizwa Branch (30 May 13) Buraimi Branch (31 July 13) Salalah Branch (15 Jun 13) Meethaq Standard Branches (4 Branches) SQU Branch Al Khuwair Branch Ibri Branch Salalah Branch

31 Channels Development Total Number of likers of our facebook has reached up to 2,992

32 Channels Development (Contd..)

33 Meethaq CSR

34 Meethaq CSR

35 Meethaq CSR (Contd..)

36 THANK YOU

Challenges of Islamic Financial Market Development

Challenges of Islamic Financial Market Development By, Ijlal Alvi Contents Evolution of the Islamic Finance Industry & Islamic Capital Markets Current State of the Islamic Capital Markets Sukuk Issues