Diversification of Islamic Financial Insturments
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3.7.5 POLICY RECOMMENDATIONS
With the objectives of economic diversification, sustainable development and financial
inclusion, resorting to a diverse and resilient and diverse financial setup will hold the key in
providing the necessary means to meet the required ends. Oman adoption and implementation
of Islamic finance serves the same and would do well to leverage on the lessons learned from
the experience centers in the Muslim world. Being a new entrant, it could lay firm foundation
of risk sharing implemented through a deliberate, slow and well-planned stage-wise design. As
suggested by Shaukat and Alhabshi (2015), in the last three decades’ important strides have
been made in applying the rule of no riba based contracts to create an Islamic system. Much
more effort needs to focus on the risk sharing aspect of the prescribed rule in the verse 275 of
chapter 2. This potential move is referred to as moving Islamic finance from version 1.0 which
only focused on the no-Riba part of the verse to now Islamic finance version 2.0; rendered to
apply risk sharing in finance-the essence of Islamic finance.
The same has ordained IFIs to align and reorient the practices based on risk sharing finance. It
could start with Islamic banks operating on risk-sharing basis. These banks could combine
Islamic finance ideology with contemporary financial innovations as well as truly market-
based allocation of financial resources that would reflect their opportunity cost. The mechanics
have been described in number of relevant studies101. The balance sheet of an Islamic bank
would be securitized on the basis of short, medium and long-term and sold in the market,
tradable over the counter and in the secondary market. To serve the purpose of financial
inclusion and asset building by lower economic classes, these securities would be low
denominated to make them accessible for purchase by everyone. This way, all citizens would
have an opportunity to share in the prosperity of the economy.
This could be achieved as a ‘New Age Model of Innovative Islamic Fintech finance’, branded
from Oman. Model that is less focused on retail banking and more towards financial inclusion,
entrepreneurship and sharply attuned to economic diversification vis-à-vis vision 2020102. In
recent times, the impact of globalization and financial innovation has swept through the world
in magnitude unprecedented, altering the very fabric of financial and economic behavior.
Automation and mechanization has already disrupted the traditional financial means to meet
the ends. This has not only created user flexibility but with it reduced transaction costs. The
flexibilities that have consequently called time on the traditional ‘business as usual
approaches’, could be referred to as the 'New Age innovative/automated financial order'. World
Bank (2015/16) predicts that automation is threatening jobs by for example, by 69% in India,
77% and 85% in China and Ethiopia.
If technology driven financial innovation is set to lead the fundamental transformations in
economic behavior/growth, resorting to novel and adaptive marketplaces become a crucial
component. The raison deter for enhanced and affordable financial flexibilities is the
possibility of transacting without intermediation. This has helped neutralize the traditional
business model frictions between the surplus and deficit units. Consequently, there is a clear
101 See, for example, Shaukat et al (2014/15); Shaukat, M (2015, 2016 & 2017a, c) Shaukat and Alahbshi (2015) and Shaukat
and Mirakhor (2016, 2017).
102 Vision 2020 is enshrined on Oman’s 9 th 5-year economic plan which hopes to mitigate its dependence on declining oil
resources through economic diversification that would reduce the oil sector’s share from about 45 percent of GDP to 9
percent by 2020.