OER-APRIL-Cover Story Ilamic Banking

7/28/2019 OER-APRIL-Cover Story Ilamic Banking

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2/1582 April 2013

Pised fr aquanum leapDespite being at its embryonic stage, Islamic nance is predicted to have thepotential to redraw the banking landscape of the Sultanate in the years tocome. Being the rst full-edged Islamic bank in the country, Bank Nizwa isapparently in the vanguard of Omans historic tryst with faith-based nance.Its CEO Dr Jamil El Jaroudi exudes condence that the bank is geared up toassume this challenging responsibility, in an interview with Muhammed Nae

d Jaml El Jaou, cEO, Bak nzwa

It was only a couple of months ago that

Bank Nizwa started its commercial

operation as the rst full-edged

Islamic bank in the Sultanate. How is

the initial response from the market?

The response has been very

enthusiastic as we expected. We

receive a lot of people who come to

inquire about our services and open

accounts with us; and they are very

much impressed by the manner andthe promptness and speed with which

we can open an account for them.

We promise that if you are eligible

we can open your account, get your

check book and ATM card before

you leave the branch. But as the

number of the visitors has increased

steadily, and as those who come

with a volley of questions about our

services and facilities have required

more time, we have arranged some

of our staff exclusively to handle such

queries, so that others can complete

the process without any delay.

What are the Islamic banking products

and services that Bank Nizwa offers

right now? And what sharia contracts/

tools does each of them apply?

Basically, people expect us, as a bank,

to offer current accounts and saving

accounts; and many of them want it

along with additional facilities. Today

we already offer these services, and

we allow our current account holders

to use the ATMs of all other banks in

COVERSTORY-ISLAMIC BANKS

the country at our expense. It means

all ATMs in the Sultanate are ipso

facto Bank Nizwas ATMs. As a new

bank, we cannot set up ATMs across

the length and breadth of the country

overnight and therefore we had to nd

out a mechanism to serve all people

who bank with us. For instance,

people who live 500 kilometres away

from Muscat cannot wait to open an

account with Bank Nizwa till we set

up an ATM machine there. We also

offer saving accounts, personal nance,

auto nance and home nance.


3/15

In home nance, the sharia model

we started with is Ijarah Muntahiyah

Bittamlik (a sharia leasing contract

whereby at the end of the contract

the ownership is transferred from

the lessor to the lessee). This is verypractical and more effective at this

stage. But sooner we are looking to

introduce other facilities such Istisna

where people can come with a design

in their mind and ask us to build a

house of their willing wherever they

want, instead of buying an already

built house. We build it and lease it

for them with an option to own it later.

Istinsa is the Islamic tool for what you

call project nance in the conventional

stream. We can also apply other

models depending on the requirementsof our clients in the future, whether

it be setting up the headquarters for

a company or building its warehouse

or manufacturing facility. Apart

from Murabaha, Ijara and Istinsna,

we will also be doing in the future

equity participation, either through

direct ownership or Mudharaba

participation wherein the investors

who give us the money would be called

Rabbul Mal (owner) while we will

be the Mudharib (those who deploy

money and invest it for them).

What about your ATM and branch

network? Where else do you want

to start branches this year?

Right now we have three branches

located in Muscat, Sohar and Nizwa.

But by the end of 2013 we plan to

open other ve branches, to end

the year with eight branches across

the country. And as I mentioned

earlier, all ATMs in the Sultanate

will be part of our network.

You have a huge paid up capital of

RO150mn. What is your comment on

the the recent CBO relaxation for Bank

Nizwa in overseas investment ceiling?

The Central Bank of Oman allowed us

to do that because there are not many

Islamic instruments available in the

Sultanate where we can invest our

money. But the concession the CBO

extended to us is only for a stipulated

period and once it is over we will

come under the normal regulation

as any other bank in the country.

It is obvious that the concession

was on the basis of our request.

Islamic nance is predicted to make

rapid headway in the country with its

asset base reaching RO1.5bn by theend of 2013. How prepared are you

for this as you have to compete against

numerous windows of conventional

players who have already started

operation?

It might be too early to talk about

competition, actually. We have not

run into each other so far. There

is enough room for everybody. We

kept saying form a practical point of

view that we welcome competition

because rst of all it helps the clients.

On the other hand, it helps us tocreate awareness rather than one

company doing it alone. And thirdly,

we exchange with them products.

Today if they have problem of liquidity,

I can help them out; or tomorrow if

we have the problem they can help

us. The monopoly of one single bank

does not work. With more players we

will have a vibrant Islamic banking

market. But still there needs to be a

limit on how much competition you

can bring to the Sultanate at this stage

and there should not be an oversupplyof institutions. And I think the Central

Bank of Oman is the best judge to

decide when to stop giving licenses.

Islamic nance is still in the edgling

state in Oman. What are the major

challenges you confront at this stage?

The biggest challenge is to create

awareness among people about Islamic

nance. People have to understand

what Islamic nance is, rather than

saying I love therefore I want. They

have to understand the importance of

Islamic nance and what it can bring to

the economy and that takes time. This

is one of the biggest challenges because

people might be confused by inaccurate

information and descriptions

presented by some for marketing

purposes. People want to understand

the fundamental difference between

the new and conventional banks.

There are many things that they still

want to know. We are generating

awareness through various types of

forums, seminars and conferences.

We are working with universities by

delivering lectures and presentations

in order to explain to the students who

are going to be the future operators

in the market. We need to reach out

to more youngsters who constitute ahuge chunk of Omans population. We

also make use of media as a channel

to send our message across. It needs to

be a collective effort between us, the

policy makers, education institutions

etc. to ensure that the message

comes from more than one source.

The second challenge is reaching

out to as many people and areas as

possible in the Sultanate because

everybody in Oman wants Islamic

banking. But we have to walk beforewe run and therefore we gradually

want to accommodate everybody

aspiring to do business with us. We

have to explore more innovative

and creative ways to reach out to

everybody. One solution is to open

new branches but it will take time to

open a physical branch by recruiting

new employees as it involves getting

them relieved from their previous

employers and giving them proper

training. The third challenge is that

peoples expectations are high andour ability to expand is controlled.

It is not as easy as being a bank and

turning it into an Islamic one.

How do you manage to nd

experienced Islamic bankers?

Although we have very good bankers in

Oman, it is dicult to get experienced

Islamic banking employees. We

are trying to bring Omanis who are

working outside the country in Islamic

banks such as Saudi Arabia, UAE,

Bahrain and Qatar. In addition, all

our employees have to go through

an intensive training programme.

Even when we open a new branch

we do training to the new comers for

three weeks from 8am to 5 pm. In

addition, every month they undergo a

refreshing course where we have our

Sharia experts interacting with them.

We also get our feedback from our

call centre about the most frequented

questions asked by people. We train

our people to give everybody the same

answer to the same questions.


4/1586 April 2013

building n a

srng legacyBeing part of a strong brand of Bank Muscats stature has beenimmensely helpful for Meethaq to put itself on strong footing in a highlycompetitive Islamic banking market, says Sulaiman Al Harthy, GroupGeneral Manager- Islamic Banking, Bank Muscat. An OER interview

How is the initial response

to Meethaq?

The response has been quite exciting

and the number of inquiries hasbeen more than what we expected

so that we are forced to double

the number of the staff. There are

two types of customers: those who

come after making up their mind

and those who initially come just

to inquire and then come back to

us after going to other banks and

understanding what distinguishes

our products and services.

What are the Islamic banking

products and services Meethaq

offers right now? And what sharia

nance models they apply?

For the time being we offer current

account, savings accounts, home

nance, and auto nance. We have

also launched corporate nancing

and have already started nancing

a number of projects of which the

biggest one accounts for about

RO12mn. And a number of bigger

projects are in the pipeline. In general,

we apply three sharia contracts.

For project nance, we primarily

use Musharaka and Ijara while for

auto nance we use Murabaha, as

most of the banks do because it is

easier. We are using Murabaha forsavings accounts and Qardhul Hasan

for current accounts. However,

we have not yet started the more

complicated contracts such as

Istisna and Salam etc. We have a lot

of products in the pipelines which

will be out in a few months time.

Where else in Oman do you want to

open branches of Meethaq this year?

We have planned to open seven

branches this year. It looks a bit

slower than we expected, but

hopefully we will have seven

branches in Muscat and other citiestowards the end of this year.

Could Meethaq leverage Bank

Muscats existing brand image

in the market to address new

Islamic banking customers?

The Central Banks regulation

requires that the window should

remain as a bank within a bank,

need to have a separate balance

sheet and separate loss and prot

account. We do a lot of awareness

and education. Recently, we trained

about 200-300 customers and had

a one week training forum in

Nizwa. We were doing this even

before we got the license. We

have explained to people that how

different the Islamic banks are from

the conventional banks and how a

window can operate as a window

and still be Islamic even though the

parent bank is riba-based. Some of

our existing customers are shifting

to Meethaq. Earlier the existing

customers did not have a choice;

The Central Bank of

Omans regulation

requires that the window

should remain as a bank

within a bank



5/15

but now they have a choice of either

staying with Bank Muscat or going

to another Islamic bank. So they

prefer to stay with Bank Muscat.

We dont hide our identity, contraryto some other Islamic windows who

dont use their parent companys logos

and where if you walk in it will be very

dicult to make out their real identity-

whether they are new banks or

whether they are part of an established

entity. But we are more transparent on

this. Everybody knows that Meethaq

is attached to Bank Muscat and a

window of Bank Muscat, so why do

we hide it? Bank Muscat is a very

strong brand and if you are associated

with a bigger brand, its good.

How prepared are you to compete

against full-edged Islamic banks,

especially when there are concerns

about the feasibility of conventional

banks offering Islamic services

through window operations?

The competition is intense. Now,

every client you speak to, especially

the corporate clients, are talking to

other banks as well. After all, what

matters to them is the pricing- the cost

of nancing. So it is very dicult. Onone hand, the window operations can

take advantage of the parent banks

support functions such as HR, IT

etc. But on the other hand, this can

also be very dicult because people

with the conventional bank used to

do banking in a given way and now

they have to do in a different way.

So we have got a lot of challenges in

terms of convincing them that they

are different and they have to be dealt

differently. Money has to be segregated;

there could not be the commingling of

the funds. As far as full-edged banks

are concerned their entire operation

is focused on one thing. However we

are giving training to them. Right now,

ve of my staff members are abroad

undergoing on-job training in a bank

in Bahrain to raise their knowledge,

ability and condence. So they can

understand how to do it here in Oman.

They may be more skilled than the

Bahrainis they work with, but we sent

them to get more condence.sulama Al hat, goup geeal Maae- ilam Bak, Bak Muat


6/1588 April 2013

on a slid fingNational Bank of Omans Muzn Islamic Banking plans to open sevenmore branches across the Sultanate this year. Muzn is equippedwith a robust system and qualied staff to offer a broad spectrumof sharia-compliant products and services, says Ahmed Al-Musalmi,Deputy Chief Executive Ocer, National Bank of Oman

Ame Al-Mualm, deput cef Exeutve Offe, natoal Bak of Oma



7/15

How is the initial response for Muzn?

The initial response from the market

is remarkable. We were amazed with

the positive response from the public

and the high demand for sharia-

compliant products. Since Muzn was

launched, we have been receiving

lots of customers opening accounts

with Muzn and conducting Islamic

transactions, be it placing of funds or

nancing requirements. We stronglybelieve that our market share of

Islamic banking will be very high

compared to our competitors, noting

the high demand for the services and

the products offered by Muzn which

are by far the best in the market.


products and services Muzn offers

right now? And what sharia


Muzn Islamic Banking caters for the

retail and corporate requirementsand our products cover the needs

on both the assets and the liabilities

sides, from Mudaraba accounts for

retail saving accounts; Wakala for

corporate and retail deposits; and

Flexi wakala for call accounts. Also,

the asset side includes Ijara for home

nance, home construction nance

and term nancing; Murabaha

for cars and assets nancing as

well as trade nance services.

What about your ATM and

branch network? Where else

in Oman do you want to open

branches of Muzn this year?

Currently we have one branch in

Muscat. However, our plan is that we

will cover the entire Oman by the end

of 2013 as Muzn will open seven more

branches in all the regions of Oman to

cover customers needs. We are facing

increasing customer demand from

all the regions requesting for Muzn

services which will drive us to speed

up the process of opening more Muzn

branches to fulll our customers needs

and expand our reach. Currently all

Muzn customers can use the National

Bank of Oman ATMs free of charge,

which reects Muzns commitments

to its customers and community.

Islamic nance is predicted to

achieve an asset base of RO1.5bnby the end of 2013. How prepared

are you for this as you have to

compete against full-edged Islamic

banks with huge paid-up capital?

Muzn is the rst Islamic banking

window to open its doors to the

public. It is also the rst Islamic

bank to register with the Ministry of

Housing and the rst to offer Ijara

services to the customers, which

gives a clear idea of how Muzn is well

prepared. We are well ahead in the

market with our dedicated and welltrained Islamic banking team and

our product suite which is geared up

to cover all market requirements.

Could Muzn leverage the National

Bank of Omans existing brand

image in the market to address

new Islamic banking customers?

Muzn is supported by the National

Bank of Oman from an operational

perspective; being the parent company

of Muzn, National Bank of Oman

provides special treatment, services

and rates to its customers to promote

Islamic banking within the group.

There were concerns about the

feasibility of conventional banks

offering Islamic services through

window operations. What arethe measures you have taken

to alleviate such concerns?

Muzn is operating with the concept

of an Islamic bank within a bank,

with a separate balance sheet,

separate paid-up capital to support

its operations, separate IT system and

separate core banking system. This

will allow Muzn to offer its services

in the market as a full-edged Islamic

bank. Our services with National Bank

of Oman are mainly concentrated

in the eld of operational support.

Muzn sharia supervisory board

comprises three of the best scholars

in the Islamic banking eld in the

world with extensive experience in this

eld. They are Sheikh Dr Mohamed

bin Ali Al Qari, chairman of Muzns

Sharia Supervisory Board (SSB) and

board member in many Islamic

organisations. He is also a sharia

professor in king Abdulaziz University

in Saudi Arabia as well as penned so

many articles on Islamic banking.

We also have on board Sheikh Dr

Mohamed Daud Baker, chairman of the

Central Sharia Advisory Council of the

Central Bank of Malaysia, Securities

Commission of Malaysia, and Labuan

Financial Services Authority as well

as many other Islamic organisations,

and Sheikh Khalfan Al-Esry, member

of Muzn SSB and a well-known Sharia

scholar in Oman with solid experience

and knowledge of Islamic banking.

Muzn is the first Islamic

banking window to open

its doors to the public. It

is also the first Islamic

bank to register with the

Ministry of Housing


8/1590 April 2013

Spreading is neAhlibank started the operation of its Islamic banking window withve branches, and the sixth one is expected to open in April. AbdullahAl Jabri, Deputy General Manager, Head of Al Hilal Islamic BankingServices, Ahlibank, is optimistic that the crescent moon, which Al Hilalis named after symbolising the start of a new era of Islamic banking,will mutate into a full moon as the bank goes along. An OER interview

Can you explain about the

branch network of Al Hilal

Islamic banking Services?

Al Hilal started its operation with

ve branches in Samail, Bahla,

Rustaq, Saham and Muscat from

day one. The fact that we launched

the operation with ve full-edged

branches offering all Islamic

products shows our readiness to

offer Islamic banking services across

the Sultanate. In addition, our sixth

branch is coming up very soon in

Salalah. The Salalah branch will

be operational before the end of

April. Opening new branches will

depend on the market requirements

and customer demand. We also

think about converting some of

our existing branches to the new

mould if there is a lot of demand for

Islamic services. All our branches

are equipped with independent

ATMS and all our customers can use

both the conventional and Islamic

ATMs of Ahli bank, although we

have segregated the systems; and

since we are part of Oman Net

our customers can use all other

ATMs in the country as well.

Abulla Al Jab, deput geeal Maae, hea of Al hlal ilam Bak seve, Albak



9/15

While all the Islamic banks and

windows started their businesses

in Muscat why did you go to Samail

for the opening ceremony?

We opened ve branches in the veryrst day of operation, but we did the

opening ceremony in Samail as a

symbolic gesture because the region

is the cradle of Islamic civilisation

in the country. The rst Omani to

accept Islam, Mazin bin Adhouba,

was from Samail and the rst ever

mosque in the country was set up in

the same place. Even the name of our

Islamic window Al Hilal denotes the

crescent moon in Islamic tradition

symbolising the start of a new era of

banking in the country and we areoptimistic that the crescent moon

will mutate into a full moon brining

more brightness as we go along.

How are your Islamic banking

products being accepted

across the branches?

The initial response has been great.

Our Islamic products have been

accepted very well and the demand

is steadily on rise. This prompts

us to open up more branches and

expand our networks to more areasin the country. Our initial strategy

is to tap into the largest segment of

new customers looking for faith-

based banking services followed by

converting our existing customers

who are willing to migrate to the

Islamic mould. Now, the demand

is very high from both sides.

Can you explain about the products

and services Al Hilal offers right now?

The products we offer are almost

similar in nature to what other Islamic

banks and windows offer. But the

difference lies in the way we offer

them. We have all the products on

both sides of asset and liability. We

have auto nancing, home nancing

and personal nancing for buying

goods and materials. On the liability

side, we have both savings and current

accounts. All our branches are fully

equipped for serving the customers

with dedicated staff which include

our direct sell team who go out to

visit the customers. We also have our

independent ATMs and very soon we

will be introducing our Islamic credit

card facility. We also issue checkbooks

and we are going to introduce

internet banking and SMS servicesvery soon. Most importantly, we are

also going to launch our exclusive

investment fund, called Islamic MENA

fund, which has been approved

recently by the regulators. Its the rst

of its kind Islamic fund in the country.


achieve an asset base of RO1.5bn

by the end of 2013. How prepared



banks with huge paid-up capital?We are placed very strong compared

other window operators in the

country because we have the largest

Islamic banking networks spread

across the length and breadth of the

country. We always position ourselves

to be the leader of the Islamic banking

services and this will continue. What

distinguishes us is that we did not

have a soft operation nor we started

with one or two products. We started

with the full range of products across

all our ve branches and with thelaunch of Salalah branch we will be

the only Islamic operator with six full-

edged branches in the rst quarter.

Could Al Hilal leverage Ahlibanks

existing brand image in the

market to address the new target


We are under the umbrella of

Ahlibank, the fastest growing bank

in the country. And now Al Hilal has

emerged as the fastest growing Islamic

window in terms of branch network,

the products offered, expertise and

technical knowhow. In addition, we

are the rst bank to introduce Islamiccore banking system. In a short span

of two months we have shown all the

signs of growing fast like Ahlibank.




window operations. What are

the measures you have taken


One of the biggest challenges is to

create awareness about Islamic

banking and to make peopleunderstand the differences between

our conventional and Islamic

operations. As an Islamic window,

we ensure the segregation through

fully independent branches,

dedicated capital, sharia auditing,

sharia supervisory board giving the

approval to all kinds of products and

services, dedicated ATM services etc.

His Majesty Sultan Qaboos bin Saids

instructions to launch Islamic banking

came a year back and from that day upuntil now, we have spent all our efforts

to educate the public about Islamic

banking through seminars. I think we

have attained a good level of knowledge

on the part of the public and our staff.

But we need to have more educational

sessions with customers because the

more they understand the concept, the

easier will be for us to provide them

with the most suitable product. The key

is to explain the differences between

conventional and Islamic banking.

They should be aware that although

the results may be the same, the

documentation, the agreement and the

process itself are completely different.

We have done a lot of awareness

campaigns in these regions which were

led by our sharia scholars and experts

from the oce of the Grand Mufti.

Apart from our sharia scholars, we

also invited scholars from other banks,

because for Islamic banking to grow

in Oman, we require collective efforts

from everybody to create awareness of

Islamic banking among the public.

One of the biggest

challenges is to make

people understand the

differences between

conventional and Islamic

operations


10/1592 April 2013

on an upswingBankDhofar forayed into Islamic banking by opening two branchesof its Islamic window Maisarah in Muscat and Salalah. Sohail Niazi,Chief Islamic Banking Ocer, Maisarah, talks about how the edglingIslamic banking industry is going to unfold in Oman and how equippedBankDhofar is to avail itself of this opportunity. An OER interview

How is the introduction of Islamic

nance going to affect Omans economy?

His Majestys decree to open up Islamic

banking has been very well receivedby the market and the people of

Oman. The country has been enjoying

a positive economic growth, while at

the same time its population has been

growing. In order for this economic

growth to be sustained, nancial

services and banking industry will

have to play an important role in the

overall economy. Islamic nance

within the broader nancial services

industry will contribute directly to

the economic growth by offering

choices and alternatives to consumers,small businesses, corporations and

government institutions alike. It will

ll the gap that existed before the

introduction of Islamic nance in Oman.

Could you talk about the results of

Bank Dhofars feasibility studies and

market plans ahead of your launch?

As part of our analysis we conducted

a comprehensive study of local and

regional markets with the help of a

leading consulting rm. We wanted

to assess the true demand for Islamic

banking products and services

and determine the role Maisarah,

BankDhofars Islamic window, can play

in meeting that demand. There were

two key themes that emerged from the

study that I would like to highlight: First,

BankDhofar has a very loyal customer

base and many of them showed keen

interest in Islamic banking in the wake

of Islamic nances introduction in

Oman. Secondly, the demographics and

trends of the market that will derive

demand for Islamic products are SMEssoal naz, cef ilam Bak Offe, Maaa, Bakdofa



11/15

and young consumer segments. We at

Maisarah will ensure that we offer best

Islamic products and services that are in

line with what our customers require.

It is predicted that prospects arebright for Islamic banking as a viable

alternative to the conventional banks

especially in the aftermath of global

nancial crisis. Your comments:

Islamic nance is based on principles

of transparency, ethics, fairness

and sharing of risk and reward. The

global nancial crisis and dicult

economic environment that ensued has

highlighted a need for better governance

and alternative options. The Islamic

nance offers complementary and

alternative solutions to existing productsand services offered by conventional

nance. The tremendous growth

experienced by Islamic nance industry

over the last few years testies to its

acceptance as a viable complementary

and alternative option. A lot of market

participants are considering it as a

serious and viable option not only in

the Muslim countries but also in non-

Muslim countries, as evident in the

issuance of Islamic bonds (sukuks) by

some major international corporations

such as GE Capital and Nomura.


products and services that

Maisarah offers right now?

On retail side, we are offering saving,

checking and deposit accounts, priority

banking, home and auto nance

through our two branches in Muscat

and Salalah, We also have other

products in the pipeline. Similarly,

on corporate side, we have goods

murbaha and kafala products ready

to be offered to corporate clients soon,

along with host of other products to

be launched in the near future.

Where else do you want to open

branches of Maisarah this year?

Based on our comprehensive feasibility

study and market research, we have

started our operations right now in

Muscat (Azaiba) and in Salalah. We

selected Azaiba and Salalah after

looking at the demographics,

commercial environment and other

business factors. As far as the future

branches are concerned, we are

evaluating new locations in the country,

but we will strategically consider

customers expectations and market

demand. Any decision on launching a

future branch will be based on thesefactors. However we are open to

opportunities anywhere in the country

and are constantly keeping an eye

on the competition in the market.

How could Maisarah leverage Bank

Dhofars existing brand image in

the market to address new target


We have an advantage as the window

operation of an established conventional

bank, as opposed to a standalone

bank. We have a big network of clientswith long and deep relationships; we

can get their feedback, and based

on this feedback we can specically

address their needs. Our strategy is

to understand the true demand for

the products from the customers and

deliver exactly what they are looking

for. We are also talking to our existing

clients who have shown interest in

Islamic banking. We can also leverage

BankDhofars existing infrastructure,

technology, and market knowledge.

If you are a new bank you have tostart everything from the scratch

and your challenge will be bigger.





the measures you have taken to

alleviate such concerns?

First of all this model is not a new

one, as it has been practiced in

many countries. But since its new in

Oman, the customer awareness and

education are very important. People

have to realize that Maisarah, the

Islamic window is a very distinct and

separate operation. We are part of alarger organisation, but we operate

a very segregated business; we have

a separate Islamic banking team,

separate premises, independent

accounting systems, policies and

procedures based on generally

accepted Islamic nance principles,

separate and independent sharia

board which supervises and oversees

the entire operation to ensure not

only that we are sharia-compliant but

also we are completely segregated

from the conventional businesses.That is the most important element

of segregation. We have to ensure

that segregation remains in place,

not only because it is sharia and

regulatory requirement, but is also

very important from customer

perception point of view. The

segregation is not physically a dicult

exercise; we have already managed

to hire very experienced professional

team with deep experience in Islamic

nance and set up a segregated

Islamic banking services business.

How prepared are you to compete

against another full-edged Islamic

bank and numerous windows of

conventional players?

We have a dedicated team working

hard to ensure that we come out with

the best offerings for our customers.

With BankDhofars aim to be the best

bank in the Gulf, we are focused on

ensuring that our Islamic division

Maisarah also will be the best in

Gulf. Under the supervision of Sharia

board, a separate brand for the Islamic

banking which will be operating from

a separate oce with a skilled team,

we will strive to meet the needs of our

customers and community. We are

going to achieve the vision of being

best in the Gulf, simply by providing

the best banking experience to our

clients, to create the best opportunities

for our employees, to establish the

best and responsible relationship with

our community and to deliver the best

results for our shareholders.

The tremendous growth

experienced by Islamic

finance industry testifies

to its acceptance as a

viable complementary

and alternative option


12/1594 April 2013

Primed fr acinBank Sohar is all set to launch its Islamic window Sohar Islamicwith four branches coming up in Muscat, Batinah, Salalah andDakhiliya regions. Mohammad Haris, Head - Islamic Banking,talks about the preparations to launch a unique, authenticand reliable Islamic banking window. An OER interview

Bank Sohar has already announced

that Sohar Islamic will be its Islamic

banking window. When and where will

Sohar Islamic be starting its operationand what are your expectations?

We are in the nal stages of

preparations and plan to launch Soha

Islamic in a few weeks time. The

intention is to make sure that when

we launch the window, we are fully

prepared in terms of products, systems,

procedures and sharia-compliant

governance structure. Our expectations

are quite high for Sohar Islamic.

Islamic banking has done well in all

the countries it has been introduced

to so far. This is especially true forMuslim countries. It may take some

time to gain momentum as people in

Oman are still to come to grasp with the

basic principles of Islamic nance. But

with time it will grow to be a sizable

component of Omani banking industry.

As Sohar Islamic, we expect to get our

fair share of the market by focusing on

customer service and convenience.


products and services that Sohar

Islamic will offer initially? And what

sharia nance models they apply?

Sohar Islamic plans to offer a

comprehensive suite of products

and services for retail and corporate

customers. Our deposit products include

current accounts; savings accounts

and term deposits. The above products

will be based on Qard and Mudaraba

structures. Our retail nancing products

are mortgage nancing; automobile

nancing; debit card; and internet

banking. These products will be based

on Ijara, Murabaha, and MusharakaMoamma ha, hea - ilam Bak, Bak soa



13/15

Mutanaqisa structures. Our corporate

nancing products are working capital

nancing; asset purchase nancing;

import nancing and project nancing(Ijara, Diminishing Musharaka).

The above products will be based

on Mudaraba, Murabaha, Ijara and

Diminishing Musharaka structures.

We hired a world renowned

consultancy rm Dar Al Sharia Legal &

Financial Consultancy to help us with

all the important aspects of launching

our Islamic banking window. Dar

Al Sharia is providing its expertise

in Sharia related matters, product

design, sharia governance and shariadocumentation to help Bank Sohar

launch a unique, authentic and

reliable Islamic banking window.

Where do you want to open branches

of Sohar Islamic this year in Oman?

Sohar Islamic intends to commence

operations soon (after obtaining

all necessary approvals) with four

branches covering Muscat, Batinah,

Salalah and Dakhiliya regions. We

plan to subsequently expand our

network with focus on nancialinclusion of the unbanked population

of Oman. ATMs will typically be

installed next to the branches. This

network will also be expanded later.

Sohar Islamic customer will have the

freedom to use any ATM on Oman Net

network absolutely free of charge.







These numbers are mere estimations.

There are various studies coming out

with different estimates of the size

of Islamic banking after one year,

three years and ve years. Only time

will tell what size Islamic banking

attains in Oman over the next few

years. However, while the estimates

may be questioned, one thing is quite

certain: Islamic banking is here to stay

and to grow. It is expected to follow

suit of Islamic banking industries in

other GCC and Muslim countries.

Oman is a market of reasonable size.

Vision 2020 envisages Oman to be anon-oil dependent country and increase

the diversication of the economy into

the services, industrial and nancial

sectors. With eighth ve-year plan

underway projecting GDP of over

ve per cent and with enhanced

government expenditure in health,

education and infrastructure and

with implementation of an industrial

strategy focusing on IT, petrochemicals,

free zones, assembly and re-export,

and tourism, I am pretty sure that all

players including Islamic windowswill get their share of business.

Could Sohar Islamic leverage Bank

Sohars existing brand image in

the market to address new target


In a short span of ve years, Bank

Sohar has emerged as one of the

leading banking institutions in the

Omani market setting benchmarks

in the banking sector. The bank has

done extremely well during the past

ve years of its operations in theSultanate marking its footprint within

the economy. The banks management

ensures that the strategy followed by

the bank revolves around the economy

and therefore with the evolution of

the banking sector within the country

to introduce Islamic banking, Bank

Sohar has planned for the introduction

of its Islamic banking window

Sohar Islamic. The logo which has

previously been revealed represents

a new bloom or start of a new era in

Islamic banking in Oman. Each form

is inter-connected to reect the bond

between the customer and the bankas well as on the bond between the

customer and their Islamic values. The

identity is ever growing and evolving,

in essence sharing the promise of Sohar

Islamic, to provide its customers with

dynamic products and services, that

is in line with the Islamic principles.

The bank had also taken initiatives to

educate the public on Islamic banking

by conducting customer awareness

programmes in Muscat, Sohar and

Salalah. This is a key initiative inpreparing the public for the dynamic

change in the banking industry. Bank

Sohar has always strived to provide

customers with a unique experience in

all its services and the Islamic banking

will be no different. The bank is

working on offering its Islamic banking

window services at four different

locations within the Sultanate and has

taken various initiatives simultaneously

to ensure excellence in all its offerings.

There were concerns about thefeasibility of conventional banks





Sohar Islamic intends to adhere to the

highest level of sharia-compliance

by meeting certain key conditions

including: complete segregation of

funds; stand-alone and independent

branches, separate sales staff,

existence of a sharia supervisory

board and sharia audit and compliance

unit; committed management;

the worlds best Islamic banking

software; and compliance with the

standards of the Accounting and

Auditing Organisation for Islamic

Financial Institutions (AAOIFI).

To ensure the highest level of sharia

governance and to have access to

unmatched sharia advice and guidance,

the bank has constituted its sharia

board comprising four reputed

international and local scholars.

Islamic banking is here

to stay and to grow. It is

expected to follow suit of

Islamic banking industries

in other GCC and Muslim

countries


14/1598 April 2013

tapping hepenialIslamic bankingwindows constitutea close alternative tofull-edged Islamicbanks and, as it has

been observed inother countries, caneven compete withfull-edged Islamicbanks, observesAzmat Raque,Head of islamicBanking, Al Yusr,

Oman Arab Bank.An OER interview

Azmat rafque, hea of lam Bak, Al yu, Oma Aab Bak



15/15

Oman Arab Bank (OAB) has already

announced its Islamic banking

window Al Yusr. When and where

Al Yusr will be starting its operation

and what are your expectations?

OAB has recently unveiled itsIslamic banking brand Al Yusr. This

is our dedicated Islamic banking

department. We have planned to

launch our operations ocially by

mid-year. Our agship branch will

open its doors to OAB customers and

other respectable clients in Muscat.

Further four branches will also open

within one year in other major cities

of Oman. We expect positive and

good response to our Islamic banking

services. This expectation is backed

by the demand of our existing clientsin OAB and also based on the nature

of our products which will soon enter

the Islamic banking market in Oman.


products and services that Al Yusr

will offer initially? And what sharia


We plan to focus on the retail, SME

and mid-tier corporate sectors in the

country. The choice of products has

been made carefully after assessing

the market, products that have beenoffered so far by our competitors

and keeping in view our strong

commitment to meet genuine needs

and demands of Omani customers.

We have plans to launch innovative

and value-added products that will

not only satisfy unique needs of

our targeted market segments but

will also help in the maturity of

overall Islamic banking industry

through availability of diversied

products in the market space.

Al Yusr is committed to its strict

compliance to sharia rules and

regulations. We have built our overall

organisational structure in compliance

with the Central Bank of Omans

guidelines in this respect. We adhere

to AAOIFIs accounting, auditing and

sharia standards. Al Yusrs operations

are being supervised by a competent

and renowned sharia supervisory

board. Dr Esam Al Enzi is the chairman

of our sharia board. He is being assisted

by Dr Khalid Al Siyabi and Dr Ahmad

Al Ayadi. Al Yusr also has a fully

functional sharia control department.

This department provides valuable

guidance and consultation on the

sharia issues to the banks management

and is equally entrusted to closelymonitor the routine operations of Al

Yusr to ensure sharia compliance.

Where do you want to open branches

of Al Yusr this year in Oman? And

what about your ATM networks?

Al Yusr will have its dedicated Islamic

banking branches. We will start our

operations with ve branches in the

rst year. These branches will be

located in the cities of Muscat, Salalah,

Nizwa, Sohar and Sur. All branches

will have ATMs but our customerswill also be able to use OABs ATMs

as well as other banks ATMs. Al Yusr

will bear the cost of OAB ATM network

use as this is a sharia requirement.







This is an interesting question. We

understand the potential in the marketas well as the intense competition that

will gradually emerge in the future.

Al Yusr plans to focus on carefully

selected market segments and our same

strategy to focus on the niches drives

the nature and design of our products.

We intend to achieve the market

leadership in our chosen areas. We do

not wish to compete with full-edged

banks on product-by-product basis.

Will Al Yusr leverage OABs existing

brand image in the market to address

new target Islamic banking customers?

Oman Arab Bank enjoys the reputation

of a solid, stable and committed

bank. Indeed we wish to continuethis legacy of prudent banking. Our

overall Islamic banking strategy draws

its strength from our time-tested

business values. Our customers will

experience the same benets through

Al Yusr that they have historically

experienced with the additional

assurance of sharia compliance.

They will also have a thoroughly

enhanced experience due to our recent

technology investments for Al Yusr.

There were concerns about thefeasibility of conventional banks





Islamic banking windows have

emerged as a successful business model

in various countries like UAE, Bahrain,

Pakistan, Malaysia, and Bangladesh.

Window can easily tap to the existing

clientele of the conventional bank,

leverage on its relationships with

corporates and regulators and relyon the existing operations, wherever

allowed by the sharia. Hence, in my

opinion Islamic banking windows is a

close alternative to full-edged Islamic

banks and, as it has been observed

in other countries, can even grow to

a size where they directly compete

with full-edged Islamic banks.

Al Yusr, in line with Central Bank of

Omans directives, is about to launch its

dedicated branches where only Islamic

banking services will be offered to our

customers. We have also acquired a

sharia-compliant core banking system

for Islamic set up. We have put in place

a robust corporate governance sharia

supervisory structure. Moreover, we

have raised separate capital to run

our Islamic business. Al Yusr also

has a well-trained and experienced

Islamic banking management team.

All these initiatives make Al Yusr

a fully sharia-compliant and will

for sure remove any doubts from

the minds of our customers.

Al Yusrs operations are

being supervised by a

sharia supervisory board

headed by Dr Esam Al

Enzi

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