Diversification of Islamic Financial Instruments
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The Sultanate’s ban on tawarruq97 did raise industry concerns skewed towards dampening
options for placing liquid funds. As a result, banks continue to push the central bank to permit
tawarruq, at least temporarily while the new industry found its feet. Central Bank of Oman,
CBO, believes that lack of Shariah compliant products to place excess liquidity funds is a
constraint and prohibiting the use of tawarruq may further reduce the options. However, it is
believed that such a prohibition, instead of hampering innovation, may give rise to it which is
indeed healthy for the growth of the industry. CBO is planning to create a task force, mandated
to conduct exhaustive research and device ways and means in order to design financial
instruments which can serve the purpose of managing liquidity in compliance with Shariah.
Moreover, the Central Bank as well as the Capital market Authority, CMA is also working with
IILM and other similar institutions for further support in order to address liquidity issues in
the industry. Nevertheless, the ban remains inflexible and offers exemption only in emergency
situations on a one-off basis for a period of no more than three months (Shaukat, 2014).
Currently, interbank transactions which are allowed include Mudarabah, Musharakah and
Wakala placements, all common Islamic finance structures.
This brings to discussion the array of overall Islamic Banking products in practice in Oman.
Product Offerings by the Oman’s Islamic Banking Institutions
At present, IBEs are offering all basic products and services to its target customer base. On the
financing side, Islamic contracts of Murabaha, Ijarah and Diminishing Musharaka are mostly
used to structure the products. Islamic contracts of Mudaraba and Wakala are commonly used
to structure deposit products. It is noteworthy that IBEs achieved a commendable growth in
pocketing Unrestricted Investment Accounts (URIA) from its investment account holders. An
Unrestricted Investment Account can be defined as:
“Unrestricted Investment Accounts are those types of accounts in which investment account
holders (fund providers) did not attach any conditions as when, where and how their funds can be
utilized. Unrestricted Investment Accounts are discretionary funds at the disposal of IBEs for
investment in Shariah compliant financing and investment avenues in the light of Shariah
guidelines. Normally Islamic contracts of Mudarabah and Wakala are used to accept URIA
deposits.”
In terms of percentage of total banking system deposits, URIA deposits were 1.1% and 7.3% in
December 2013 and September 2015 respectively.
Akin to other GCC centers, Oman as the latest mover in Islamic finance in its given economic,
demographic and specific economic set up, which is tending to open to the world, suffice the
selection of the above mix of Islamic banking products. This has relevance to following the
globally pervasive retail banking focused Islamic banking model.
97 Original Tawarruq is where one party buys an asset from a vendor with payment deferred, and sells it to a third party for
cash. Organised tawarruq, where transactions occur in exchange for a financial obligation, has been criticised by some
Islamic scholars because of its weak link to real economic activity; rendering organised tawarruq as a "deception", hurting
its acceptability in the industry (OIC Fiqh Academy, 2009).