Oman’s central bank has set up a sharia supervisory board to help oversee the sultanate’s Islamic banking industry, a centralised model that is increasingly being adopted across the global industry but remains a rarity in the Gulf.
Sharia boards are groups of scholars who rule on whether financial instruments and activities follow religious principles, such as bans on interest payments and pure monetary speculation.
Oman was the last nation in the six-member Gulf Cooperation Council to introduce Islamic finance, publishing rules for it in 2012. The introduction of a central sharia board could now speed up product development, limit costs for Islamic banks and facilitate issues of sukuk (Islamic bonds).
The central bank appointed five members to its sharia board, which will have direct oversight of Islamic banking institutions, similar to the approach taken by regulators in Malaysia, Pakistan, Morocco and Nigeria. The five members were chosen from seven nominated candidates, the central bank said without naming them.
By contrast, most Gulf countries practice self-regulation of Islamic financial institutions, leaving sharia boards in each commercial bank to determine which products are permissible. Bahrain’s central bank has a sharia board that vets its own products.
The United Arab Emirates has said it plans to follow the centralised approach, backing this up with specific legislation, which could help reduce the risk of conflicting rulings from the sharia boards of various Islamic banks. It has not given a timetable for the legislation.
In Oman, two full-fledged Islamic banks have been established, Bank Nizwa and al izz Islamic, as well as several Islamic windows operated by conventional banks.
Sukuk issues are being considered by the government and banks but progress has been slow, with only real estate developer Tilal Development Co making a small sukuk issue last November.
Oman’s finance minstry plans to issue OMR200 million ($519.5 million) worth of sovereign sukuk early next year, the government’s first such issuance, the chief executive of Bank Nizwa told Reuters last month.
The Islamic unit of Bank Muscat, Oman’s largest lender, plans a dual-currency sukuk deal worth around $300 million as part of a OMR500 million sukuk programme which the bank’s shareholders approved in March.