https://d5nxst8fruw4z.cloudfront.net/atrk.gif?account=pUuXo1IWhd10Ug
logo
Islamic windows should become full subsidiaries: Bank Nizwa CEO
August 26, 2015 | 6:20 PM
by ELHAM POURMOHAMMADI/[email protected]
 
Sharelines

MUSCAT: More full-fledged Islamic banks are needed and the Islamic banking services of conventional banks should be converted into full subsidiaries if Oman were to fully embrace the Islamic finance concept in its entirety, says a senior official at Bank Nizwa.

“It would also eliminate potential regulatory arbitrage between conventional banking and Islamic banking that could harm or raise doubt on the Sharia aspects,” said Dr Jamil El Jaroudi, chief executive officer of Bank Nizwa, Oman’s first fully-fledged Islamic bank.

“Their cost of doing business and relying on their parent banks’ infrastructure resulted in a disadvantage for the business of fully-fledged banks,” El Jaroudisaid in an exclusive interview with Times of Oman.

Excerpts from the interview:



Do you think there is still room for more full-fledged Islamic banks in Oman?

Definitely, in the medium term, the market needs more players. It is difficult to create a vibrant market with just two players, especially with more people opting to shift from conventional to Islamic banking services. The Islamic windows of the conventional banks, although played a role now and contributed to grow the market, it is still be part of the conventional system naturally due to the reliance on the same infrastructure and systems.



A number of conventional banks have established windows for Islamic banking. How do the services of a full-fledged Islamic bank such as Bank Nizwa differ from their services? What are the advantages of your services?

Our path is different from the conventional banks’ Islamic windows. While we strive in accommodating the present demand for banking services to produce alternative products, which are Sharia-compliant, and these products would directly compete with the windows’ offerings, we believe that our products are built to suit Sharia objectives and be Sharia-principled not merely being Sharia-compliant.

Being Sharia-compliant is a must in every aspect even for the contracts and agreements signed with our vendors, which are not necessarily related to the final products offered to our clients. We ensure that our systems are Sharia-compliant and all steps to processing also are Sharia-compliant. This is because Islamic finance is not all about avoiding riba’ or interest (usury), it is also about methods and procedures.

Some conventional banks see Islamic windows as a defensive strategy while others see them as opportunities? What is your opinion?

That is very true but it is also expected. Hesitation is normal when it comes to adapting a new system that is foreign to them, but seeing the threats of losing their market share, it forced their entry. Those who believe in what Islamic finance can offer, on the other hand, would look at this as a great opportunity to claim more market share or simply as the next phase of their growth. However, our offerings are all about the long-term benefits customers can reap.

Do you see the Islamic banking services of conventional banks as ‘complementary’ or ‘competing’ with your services?

It is a mixture of all. But we feel that if Oman were to fully embrace the Islamic finance concept in its entirety, then the Islamic banking services of conventional banks should be converted into full subsidiaries. It would also eliminate potential regulatory arbitrage between conventional banking and Islamic banking that could harm or raise doubt on the Sharia aspects.

At the beginning, windows were auxiliary to Islamic banks in the launching phase by spreading awareness and products, but we noticed more drawbacks as they took business away from full-fledged banks, thus hindering their growth and profitability. Their cost of doing business and relying on their parent banks’ infrastructure resulted in a disadvantage for the business of fully-fledged banks.

Do you see conventional banks offloading their Islamic windows? Why?

This would be the natural progression. If you see other countries such as Qatar and Malaysia, this is also expected for the Omani market, although we cannot say how soon because the windows have yet to reach their critical sizes to be able to justify conversion into standalone banks. It would require the lawmakers’ intervention if the exercise is to be expedited.

STAY UPDATED
Subscribe to our newsletter and be the first to know all the latest news