Diversification of Islamic Financial Insturments

141

is considered among the most stringent to govern Shariah compliant financing. Following are

the major highlights of the IBRF.

Table 57: Regulatory Requirements for Islamic Banks in Oman

Pre- Requirements Brief Description

Minimum Capital

Requirements



For Islamic banking windows: RO 10 million



For full fledge Islamic banks: RO 100 million

Sharia Governance

Structure

Islamic Banking Regulatory Framework has introduced a comprehensive

Shariah Governance structure equally applicable to full-fledged banks as

well as windows. The elements of Shariah Governance are:

Shariah Supervisory Board (minimum of 03 members with strict

eligibility criteria)

Internal Shariah Reviewer

Shariah Audit Unit

Shariah Compliance Unit

Moreover, the scholars are not allowed to serve in two competing Islamic

financial institutions within the country, and they can work in a maximum

of four non-competing institutions. They are also required to attend a

minimum of 75 percent of board meetings or risk being disqualified;

Shariah boards must meet at least four times a year, and must disclose the

number of meetings in the bank's annual report. Shariah scholars will face

performance assessments, both collectively and individually.

CBO believes that these provisions will to go a long way in addressing

complaints of potential conflict of interest and lax standards on Shariah

boards. Nevertheless, to further strengthen Shariah governance Oman has

also formalized a Centralised Shariah Board

Restriction on

Tawarruq

As a general rule, Commodity Murabaha Transactions (CMT) or Tawarruq

is not allowed.

External Shariah

Review

Besides annual financial audit, IBEs are bound to hire services of external

auditors to perform Shariah review. This is in addition to routine internal

Shariah audits and compliance reviews by the Shariah Audit and

Compliance Units of IBEs.

Independent

business Function

Islamic banking windows are required to hire dedicated staff for business

functions. Moreover, windows are not allowed to offer Islamic banking

products and services through conventional banking branches.

Separate core

banking systems

The Central Bank of Oman encourages a separate core banking system for

Islamic banking windows that is capable of handling Shariah compliant

financing and investment activities. It is also to ensure non-commingling of

funds between conventional bank and Islamic banking window.

Accounting

Standards

The financial statement of IBEs shall be prepared under the guidance of

Financial Accounting Standards issued by the Accounting and Auditing

Organization for Islamic Financial Institution (AAOIFI)

Source: Created by Author

See CBO Regulation No. BM/54/12/2013 regarding the establishment of the Supreme Shariah Audit Authority within the

CBO.